LNG: new trade flows, European demand push up charter rates

As the International Energy Agency’s (IEA) most recent quarterly gas market report noted, “Security of supply has become a top priority in Europe and other importing regions as a total cut-off in Russian flows to Europe cannot be ruled out, creating further tensions and demand destruction for all competing LNG importers.” 

The geopolitical situation has also had an impact on LNG contracting behaviour, with an increase in fixed-destination and longer-term contracts that constrict the number of vessels available to trade in the spot market. IEA notes that these contracting trends are especially present for the European Union, which has adopted a number of measures to enhance security of supply and market resilience as colder months approach in the Northern Hemisphere.

The IEA has said it expects European LNG imports to increase by over 60 billion cubic metres this year, or more than double the amount of global LNG export capacity additions, keeping international LNG trade under strong demand pressure for the short- to medium-term.

Sky-high rates and the increasingly competitive spot market are causing issues for developing nations, too.

Last month, Gas Authoirity of India Ltd (GAIL) – India’s biggest gas distributor – paid US$40 per million btu for a shipment of gas. And this week, GAIL also booked the gas tanker Schneeweisschen to load a cargo in early November from the US at about US$360,000 per day.

While India has continued to import energy from Russia following the invasion of Ukraine, some of the subcontinent’s supply flows have halted. Germany, according to reporting from Business Insider, told GAIL it no longer had supplies for India, and is currently paying a small fine for not delivering promised LNG shipments in October.

However, overall demand in Asia for imports may be lower than last year for the remainder of 2022. Indian LNG demand declined by 31% in September. South Korean demand also contracted while China’s total LNG imports are expected to post their first major annual decline since 2006, according to analysts. Extended Covid-related lockdowns continue to contribute to lower demand in China, and Chinese LNG buyers are reportedly redirecting cargoes to Europe as domestic demand lags.

And DNV’s Energy Transition Outlook also addressed an energy shift in lower-income economies.

"High energy and food prices are reversing the coal-to-gas switch and putting a dampener on decarbonisation investments. For example, the share of gas in the Indian subcontinent’s energy mix will reduce from 11% to 7% in the next five years, while the share of coal will increase," the DNV report said.

The IEA said it expects the gas market to remain tight into 2023 as reorganisation of trade flows and high rates linger, but the agency said it believes Chinese LNG imports could pick up in 2023 under a series of new import contracts concluded since the beginning of 2021, while colder-than-average temperatures in the region could also result in additional demand from northeast Asia in the coming months.

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