Monday, October 28, 2019

The reasons behind rising LNG charter rates

"So what is behind the move? A key catalyst has been the US sanctions slapped on state-owned Chinese shipping company Cosco for breaching Iranian oil sanctions. This has effectively ‘blacklisted’ a number of vessels operating under long term charter e.g. from Tangguh in Indonesia, Bintulu in Malaysia and the North West Shelf in Australia.  The sourcing of replacement vessels in the spot market has driven up rates.
Four icebreakers used to transport LNG from the Yamal peninsula were also impacted by sanctions, given a Teekay JV with a Chinese company owned by Cosco.  But this issue was resolved last week via an ownership restructure that circumvented the sanctions.
The Cosco issues have grabbed headlines but there are a couple of other factors behind the recovery in charter rates:
  1. Contango: Both TTF and JKM forward curves are in steep contango (rising forward prices) across the next two months. This reflects market normalisation from very weak prices across the summer. Curve contango is encouraging cargo owners to use LNG vessels as floating storage i.e. you get paid for delaying delivery of the cargo given rising prices.
  2. Distances: As new US export volumes come online, they are increasing average shipping distances, particularly if the LNG is flowing to Asia. This effectively increases utilisation of the global vessel fleet, acting to tighten supply and support charter rates."

You can read the rest of the piece via the below link: 

No comments:

Post a Comment