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Asia-Pacific LNG shipping rates reach record high on winter demand

Highlights

Asia-Pacific LNG shipping day rate assessed at $300,000/day

LNG vessel supply in Pacific extremely constrained

LNG shipping rates may hold on to higher levels for some time

Asia-Pacific LNG shipping day rates have surged to an all-time high of around $300,000/day for a standard LNG carrier, as vessel demand outpaces a tight supply of ships in the region, ahead of peak winter season.

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The S&P Global Platts Asia Pacific LNG shipping day rate was assessed at $300,000/day on Nov. 18, nearly six times that of around $50,000/day recorded at the start of November, along with a ballast rate of 150%, on the back of a reported fixture which was done earlier in the current week.

The Asia-Pacific day rate last hit a record high of around $175,000/day in mid-January and has been mostly rangebound between $50,000/day and $70,000/day for most of 2021. The Atlantic LNG shipping day rate also surged to around $245,000/day this week, but was still short of the nearly $300,000/day record high in January.

The prices reflect the daily hire rates for chartering a modern Tri Fuel Diesel Engine (TFDE) vessel for a short period in the Atlantic and Pacific basins, loading 25 to 45 days ahead of the day of assessment. The ballast rate, which reflects the extra cost to position and reposition vessels for a spot voyage, calculated as a percentage of the day rate.

Charterers who have LNG shipping requirements for end-December loading in the Pacific are receiving offers for above $300,000/day and with a ballast bonus covering the fuel and hire cost for the vessel to be redelivered at its next load port, a source with a charterer said, adding that currently offers are coming from trading houses.

The supply of ships in the Pacific is extremely constrained, and with winter on the horizon, charterers who need an LNG vessel to cover their short positions might likely have to pay up, brokers said, adding that the market can be expected to hold on higher side.

While some charterers felt the latest high-priced deal may not repeat for subsequent fixtures, others said the LNG shipping market was very bullish with no independent owners with ships available for charter, and everything booked out much earlier as charterers secured winter tonnage from March till July 2021.

In mid-October, the volume of LNG cargoes on the water had hit new record high, above the five-year average level, due to a steep contango in LNG price structure that saw the October-November JKM spread at nearly $14/MMBtu. This incentivized traders to book more vessels and likely lead to a surge in demand for LNG carriers that are yet to return to the spot market.

Shipbrokers said the momentum for LNG shipping demand was strong from the start of this year due to the energy crunch, as European and Asian LNG prices surged. In the current market, most charterers have covered their short positions in advance and with high JKM prices pulling in arbitrage from the West to the Far East, LNG vessel have been busy on longer voyages to Asia.

A 30-day round trip from the US Gulf to Europe gets doubled to around 70 days from the US Gulf to Asia, which takes away ships from the market for a longer duration of time and tonnage continues to remain very constrained.

This issue is exacerbated due to Panama Canal delays where the waiting time for vessels with unreserved slots has grown to around 10-15 days, according to brokers. Freight rates going forward, for January 2022 loading, will be very much dependent on the severity of winter in north Asia.