Drewry: European LNG demand growth will not raise freight rates

LNG shipping freight rates continue to be under pressure from weak Asian demand and a growing fleet, shipping consultancy Drewry said in a report.

Shipowners are now pinning hopes on a revival in European demand. However, European LNG demand growth will not be sufficient to raise freight rates, according to Drewry.

Until the recent fall in oil prices, Asian LNG prices were at a premium compared to piped gas prices in Europe. European traders therefore preferred to re-export cargoes to more profitable Asian markets.

Drewry’s report says this helped to create substantial shipping demand as vessels found employment on both legs of the trade, first in import and then in re-export.

However, as Asian demand has weakened the price differential between Asian LNG and European piped gas has eroded, which has hit re-exports from Europe.  Spain, the biggest re-exporter from Europe, shipped 1.3 million tonnes of LNG during the first eight months of the current year, down 40% over the same period last year-

But can Europe be the game changer? The recent fall in oil prices has made LNG competitive compared with piped gas, which has the potential to create more demand for LNG in European countries as they seek to diversify their supply base.

However, a growing preference for renewable sources of energy and weakening domestic gas consumption will cap any major surge in LNG demand in Europe. Asia will continue to be the main hub for LNG demand and trade, the report added.

Image: K Line