It has never been more expensive to get a container of goods across the ocean. But it’s not just containers. Liquified natural gas (LNG) shipping is also rewriting the record books.
Argus reported that BP has just chartered the ship LNG Abalamabie for the equivalent of $350,000 per day. That makes it the most expensive cargo-ship charter in history, surpassing the $300,000-per-day peak previously recorded in the very large crude carrier (VLCC) segment.
What’s different about the LNG record — compared to container and crude shipping highs — is that LNG deals remain extremely profitable for cargo shippers.
The cost of LNG in Asia is now so much higher than the cost in the U.S. that shippers can pocket massive profits even when paying record rates to transport cargoes from the Atlantic to the Pacific Basin.
When the VLCC sector hit its pinnacle, crude transport costs reached the point where they erased refiners’ margins; refiners stopped booking cargoes and rates fell back. In the container sector, rates appear to be near the point where they erase importer profit margins. Some importers may even be transporting goods they will have to sell at a loss, because the alternative is to halt imports and lose market share to competitors.
In LNG shipping, there is plenty of room for rates to rise and for shippers and traders to still profit on the cargo move.
The problem — similar to what is happening in the container sector — is that there are not enough LNG ships in existence to handle demand.
Why LNG shipping rates are so high
Clarksons Platou Securities explained, “The Platts Far East assessment surpassed $21 per MMBtu [million British thermal units] at the end of last week, which compares to U.S. Henry Hub natural gas prices below $2 per MMBtu.
“This has fueled LNG spot vessel demand, leading to rates above $300,000 per day. While the rate jumps off the page, the freight cost equates to around $5.50 per MMBtu — well within the wide $18 per MMBtu spread between the regions,” said Clarksons.
Clarksons assessed average rates for modern two-stroke LNG carriers at $215,000 per day. At this time last year, rates for a comparable ship were $103,000 per day.
But some shippers cannot find vessels to load even when offering to pay Guinness Book rates.
According to Argus, “A number of U.S. offtakers opted to turn down February volumes in December, because of an inability to find the vessels to load their contractual cargoes. Offtakers that opted not to turn down their February volumes are now finding themselves with cargoes that they cannot find the tonnage [for].”
How long could rate spike last?
In the case of container shipping, COVID has supercharged rates as consumers switch purchasing from services to goods. In the case of LNG, shipping rates have been driven up by extreme winter weather in Asia (LNG is used to generate power for heating), LNG production outages in Asia and Panama Canal congestion.
According to Stifel shipping analyst Ben Nolan, “The tightness …will doubtless ease with moderating weather. However, we believe the fact that prices are as high as they are is indicative of stronger underlying demand even after seasonal adjustments.”
According to Jefferies analyst Randy Giveans, “We expect LNG carrier spot rates will remain robust during Q1 2021 as the arb [arbitrage] window remains open.”