As of early November 2018, LNG carriers active in the spot market were receiving US$200,000/day for their services, exceeding the US$180,000/day peak achieved in 2012
Who would have thought it? After several years of a depressed freight market and an unprecedented level of newbuilding deliveries so far in 2018, LNG carrier (LNGC) owners are currently commanding spot cargo rates that are 45% up on mid-September 2018 levels, 100% ahead of those pertaining at the height of last winter and higher than the previous peak level, achieved in 2012.
The current situation is in stark contrast to the market lows of 2016 and early 2017, when shipowners had to be satisfied with sums as low as US$25,000/day for spot voyages. That figure was below the breakeven level but, with up to 50 ships free on the spot market, there was no upward pressure on freight rates.
As of early November 2018, S&P Global Platts assessed Asia Pacific and Atlantic Basin average day rates for LNG vessels at US$170,000/day and $140,000/day, respectively, up from US$140,000/day and $130,000/day just two weeks earlier. The buoyant upward trend indicates that the growing fleet capacity is unable to match the expansion of current global LNG production output.
"The fundamentals are in place for the present bull run for LNGC owners to be sustained through 2019"
Despite the shipyard completions of a large number of newbuildings in 2018, there is currently a lack of prompt LNGC availability in both the Pacific and Atlantic Basins. As of 1 November, the tally of LNGC completions for the year stood at 47 and, by our reckoning, another 10 are due for delivery before year end. A total of 57 completions would make 2018 the busiest year ever for newbuilding additions to the global LNGC fleet.
According to brokers, there are currently no LNGCs controlled by independent owners available for hire in either the Pacific or Atlantic regions. Charterers are having to look for any relets that portfolio players and traders are willing to make available to the market.
With newbuilding deliveries set to continue briskly through to year end and into 2019, optimistic charterers could be forgiven for thinking that fleet supply will soon swing into the black and the upward pressure on freight rates will ease in the months ahead.
However, LNG supply is also in the midst of a growth surge and the new tonnage coming onstream will soon be absorbed by the market. New projects are set to make up to 27M tonnes per annum (mta) of additional LNG production available in the months ahead, including 18 mta from four new liquefaction trains in the US Gulf.
Further additional US production facilities will soon follow. Between now and the end of 2019 a total of 38 mta of new US LNG export capacity is expected to be onstream. US shipments, especially to Asia, mean longer delivery voyages, adding to tonne-mile figures and the demand for tonnage.
The increased call on LNG shipping capacity, which is inevitable during the winter season, provides some explanation for the current shortage of ships and rising freight rates. However, the fundamentals are in place for the present bull run for LNGC owners to be sustained through 2019.
Benefits from the buoyant freight market are even percolating down to older vessels powered by steam turbines. The low fuel efficiency of this propulsion system compared to LNGCs propelled by dual-fuel diesel-electric systems and two-stroke engines has meant that steam ships have been the least-favoured vessels in the spot market.
However, in the exceptional circumstances currently pertaining, even the prospects for available steam turbine LNGCs are on the rise. Some vessels of this type have been fixed at rates of over US$100,000/day in recent weeks.