Energy majors active on the LNG market have started to enquire about chartering LNG carriers for the upcoming winter, shipping market sources have said.
The winter requirements have come out earlier this year than in 2017 and ahead of anticipated winter demand, with charterers expecting stronger rates and trying to make fixtures while the shipping market is weak.
At least three firm requirements came out last week, with two more companies also testing the shipping market. The requirements are for multi-month charters starting from the fourth quarter in both the Atlantic and Pacific basins.
There are up to two additional requirements for charters starting in the third quarter and several multi-year enquiries, according to a ship owner. The multi-year charters are for 2019 and 2020, a separate source said.
Among the companies looking for multi-month charters, the majority are portfolio companies and UK-based utility Centrica.
China’s CNOOC and France’s ENGIE are among the companies enquiring about multi-month charters, a shipbroker said. Russia’s Gazprom is looking for a three-year charter, the source added.
Trading companies have remained quiet so far as they do not have structural shipping demand, according to a separate shipbroker.
“[Charterers] will try to fix on the bottom level of the market,” the shipbroker said. “If you have structural shorts, you will have to find tonnage. We expected requirements to start coming out from May.”
Prompt LNG charter rates have dropped considerably since the start of the year.
The Pacific rate for a modern, tri-fuel diesel electric (TFDE) vessel, has more than halved and the Atlantic rate has dropped by 44%.
The portion of the ballast bonus being paid in each basin is now below levels seen earlier in the year.
“Charterers are trying to profit on the spot rates,” the ship owner said. “No one wants to be the last one to charter a vessel this year.”
This is a different trend from 2017, when rates were much lower overall, including in the winter time.
Over the first four months of last year, the Atlantic prompt rate remained unchanged and the Pacific prompt rate fell by only 17%.
Current prompt TFDE rates are up to 40% higher in the Pacific and up to 50% higher in the Atlantic than in the same period last year.
In the Pacific, a TFDE vessel could be hired for as much as $35,000/day and in the Atlantic for up to $45,000/day.
There are expectations that with growing LNG demand and supply this year, charter rates will shoot higher in the upcoming winter than in the previous year, when deals already reached levels of $100,000/day.
If more multi-month charters are done now, fewer ships will be available for prompt charter in winter, which is expected to support rates.
But this year will also see a record high number of new vessel deliveries. In the first quarter, the number of new deliveries doubled compared to the three previous years.
New vessels are mostly aimed to serve certain production projects, such as Freeport and Cameron LNG in the US where start-up timelines continue to shift.
The vessels will be available for spot charter while they await project start up.
Upcoming US production will add up to 44m tonnes of LNG to the market over 2018-2019, supporting tonne-mile demand for vessels.
But there are also concerns that the rise of Chinese LNG demand may not be as significant as last year, as district heating stations are expected to slow down the shift from coal to gas this year before increasing again next year.
“It’s unlikely that several multi-month charters will lift the rates significantly in winter,” a shipbroker said but accepted that the shipping market may turn slightly short next year. email@example.com