Drewry: LNG Spot Charter Rates Hit Peak despite Low Seasonal Demand

Despite growing availability of LNG carriers and traditionally low seasonal demand, LNG charter rates strengthened throughout the second quarter of 2018 and are at their peak since 2012, shipping consultancy Drewry said.

Shipowners with modern DFDE vessels chartered out their ships at USD 60,000 per day in 2Q18, which is about 50% higher than the rates seen in the third quarter of 2017. At the end of June 2018, some vessels were reportedly fixed at USD 85,000 per day – the level usually seen in the peak of winter, when LNG vessels are in high demand.

Drewry explained that one of the major factors behind the recent rise in charter rates is the declining employability of older LNG carriers because of poor fuel efficiency, higher operating costs, less cargo-carrying capacity and high boil-off rates. Combined, these factors have effectively rendered a number of LNG carriers unemployable, hence squeezing the actual supply of vessels in the spot market.

With regard to fuel efficiency, bunker costs play a major role in decision-making. An old (30 year plus) steam turbine vessel can use as much as 215 tonnes of bunker fuel per day, while the average consumption of more modern steam turbine vessels is around 170 tonnes per day. On the other hand, modern DFDE LNG vessels burn only 140 tonnes of bunker, reducing the cost of bunker substantially.

Another issue, which makes modern DFDE vessels more attractive to charterers, is their ability to reinject the boil-off back into cargo tanks. This is a critical factor, especially on long-haul trades, where a substantial chunk of the cargo is either used as fuel, or simply flared on older ships.

Even at a time when charter rates are quite strong, there are at least 24 laid-up steam turbine vessels, which is about 11% of the total steam turbine fleet. About 92% of these vessels are younger than the average demolition age of LNG carriers over the last five years.

“The current state of LNG vessel employability is challenging the conventional wisdom about the average economic life of LNG carriers, which used to be 35-40 years. If the current trends continue, ship financiers will start taking a more conservative view while financing second-hand assets in the LNG market,” according to Drewry.

Drewry believes the current rally in charter rates will continue to sustain through to 2019. With increasing availability of modern vessels, owing to new deliveries and strong orderbook, the road ahead for older tonnage will be difficult.