Chartering of LNG Shipping Weakens Further in Q2

The market for chartering of LNG shipping deteriorated further during the second quarter of 2015, Golar LNG said in its second quarter business results.

As explained, chartering activity and rates both remained low for much of April and May. During the latter half of May and into June the number of fixtures did increase, however these were not accompanied by material improvements in rates.

Seasonal LNG demand in the Middle East, South America and in Japan/Korea/Taiwan paved the way for some incremental shipping demand. Pricing in these markets meant that a small arbitrage opened up against European pricing, allowing re-exports to increase again, relative to the very few witnessed in 1Q, Golar said.

 Charter rates were recorded on average in the low/mid $20,000’s per day for steam vessels while TFDE vessels noted average headline rates in the low $30,000’s per day, mostly with Ballast Bonus equivalent to fuel cost only to the nearest of Singapore, Gibraltar or Fujairah.

According to Golar, July through to the present date has progressed in a similar manner. Albeit at low levels, there is a steady flow of fixtures which are being serviced by ample tonnage, keeping rates under pressure.

Namely, the number of spot cargoes traded in the 8-months to date is in line with the total cargoes traded for the whole of 2014. As a result, some charterers have started to consider their options for covering requirements from 4Q this year through 2016 and certain term deals have been concluded.

The start-up of projects in 4Q is expected to boost shipping demand with APLNG, Gladstone LNG and Cheniere’s Sabine Pass expected to initiate operations. Indonesia’s Senora-Donggi project has now commenced operations and the second train of BG’s Queensland Curtis project is also now ramping up.

“The immediate issue to contend with is the sporadic and unpredictable availability of charter opportunities in different parts of the world. These can be difficult to capture without vessels nearby and result in prolonged periods of offhire for vessels as a result,” Golar said.

To help address this Golar is entering into a pooling arrangement with Gaslog and Dynagas, known as the LNG Carrier Pool.

In terms of outlook, Golar said that the lower gas price environment is triggering lower cost LNG production, which will create additional demand for the fast track GoFLNG concept. A significant share of growth in the LNG market over the coming years is expected to come from LNG replacing coal and oil based power generation.

 The LNG shipping market remains under pressure and rates so far in 3Q have remained at levels around $25 – 30,000 per day.  Utilization of the shipping fleet has however improved in 3Q versus 2Q.

Golar’s second quarter operating results were negatively impacted by lower utilization and underlying revenue net of voyage expenses.

Utilization of the Golar fleet declined from 46% in 1Q to 33% in 2Q. Overall, Golar had a $21 million decrease in underlying EBITDA from a loss of $4.3 million in 1Q to a loss of $25.3 million in 2Q. The end of the commitment linked to Golar Eskimo and an improvement in utilization is likely to result in a solid improvement in the company’s 3Q operating results.