Drewry: LNG shipping rates to stay low until 2018
Earnings for LNG shipowners are expected to improve from 2018 onwards as the majority of U.S. facilities come online, according to the shipping consultancy Drewry.
The consultancy added in its latest report that the first quarter of 2016 was similar to the previous quarter with spot rates remaining low at US$30,000 per day.
Freight rates for LNG carriers remained low despite the start-up of Australia Pacific LNG as well as the Sabine Pass LNG project in the United States.
Drewry added that the ramp-up of Australian projects will not improve shipowners’ earning due to the proximity of Oceania and Asian markets.
The glut, that is expected to keep the rates under pressure until 2017, has been caused by the inflated fleet growth over the past few years.
Effects of the Sabine Pass start-up are also expected to be minimal on LNG shipping demand as the cost economics of importing LNG into Asia from the US are so unfavourable.
Drewry’s report shows that the landed cost of US LNG, without mark-up, at current Henry-Hub and bunker prices is around $6.00 per MMBtu, while the spot price in Asia is currently between $4.00 and $5.00 per MMBtu.
“Based on the above considerations, we believe that the majority of the cargo from Train 1 will land up in either Europe or Latin America, for two reasons. First, demand from Far East Asian countries is weak, and second, in the current low-price environment it does not make much sense to import from the US. Thus, if this happens, tonne-mile demand will be one-third of what it would be if exports went to Asia,” said Drewry’s Shresth Sharma.
He added that the additional export volumes will not have any major effect on LNG shipping rates as these are matched by vessel deliveries.
According to Sharma, the market will have to wait until 2018 for more US facilities to come online, bringing large production capacity that would be sufficient to consume the inflated vessel supply.