LNG ships face rising risk costs after tanker attack

Source: Heren

2019/06/13

LONDON (ICIS)--Insurance premiums on LNG shipping are likely to rise following the attack on two oil tankers in the Gulf of Oman on Thursday.

The attack may affect additional premiums on war risk cover, as they are priced according to changes in war risk areas, an executive from a marine insurance provider told ICIS, speaking on condition of anonymity.

Marine insurance providers offer three main areas of cover: Protection and Indemnity (P&I); Hull and Machinery (H&M); and war risk.

In terms of P&I or H&M premiums, it is unlikely pricing will be affected in the short-term, he said.

The two oil tankers were hit by explosions on Thursday morning in the Gulf of Oman, which connects the Arabian Sea with the Strait of Hormuz and the Persian Gulf – vital waterways for oil and LNG cargoes shipped out of the Middle East.

The cause of the explosions is unclear and Iran has denied any involvement in the incident. No casualties have been reported.

Oil prices rose by as much as 4.5% following the incident.

Any sustained rise in the price of oil would feed through into oil-indexed LNG contracts in due course, and potentially influence spot LNG prices.

The attack in such a busy shipping lane essential to the export of Middle Eastern cargoes is worrying for LNG shipowners.

“Qatar is the biggest LNG exporter in the world so if it’s a problem to enter the Gulf then it would be a real concern,” said Awilco LNG CEO Jon Storheill.

Insurance premiums on war risk areas will rise following the attack, he agreed.

However, it is too early to tell whether shipowners will raise charter rates to include a risk premium to carry cargoes through the Persian Gulf.

During the Iran-Iraq war in the 1980s, the war risk was so heightened that the area was off limits to international shipping. “But the owners that did enter got very well paid to do so,” said Mr Storheill.

TRADE DISRUPTIONS

There was one potential sign that LNG trade patterns are already being affected by the attack. The Qatargas 135,000cbm Doha made a course change not long after the attacks and was now heading back towards Qatar and away from the Gulf of Oman. The vessel was heading to Japan. Qatargas did not comment by the time of publication.

A shipbroker was unable to confirm that the vessel had turned around due to the attacks, but he said there could be a link.

But other Qatari vessels continued to head through the Gulf of Oman, according to LNG Edge.

The ramifications of a reluctance to trade would be broad for LNG shipping.

Exports from the Persian Gulf would plummet, which would have a profound knock-on effect on traffic through the Suez Canal which enables Middle Eastern cargoes to be hauled to Europe, said Leith Agencies executive director Jacob Guldager.