PIRA: LNG carrier charter rates improve on soft supply

NYC-based PIRA Energy Group believes that soft LNG supply status bids up value of tanker capacity.

PIRA also said that in the U.S., EIA-reported storage draw could be termed positive, if not “shockingly bullish”, while in Europe, with oil prices dropping quickly, the ceiling on spot gas prices will be moving down as well.

Downward pressure on tanker rates this year has been ameliorated somewhat in 4Q. An unprecedented need for floating storage, or at the very least slow steaming, has emerged. Supply growth is outpacing demand for LNG despite the market being less than two weeks away from the beginning of winter. Still, spot charter rates for a standard sized 145,000 cubic meter LNG carrier are down by 22% over last December. In particular, spot rates in the Atlantic Basin are trading at a premium to Asia due to the lack of an open arbitrage window to the Asia market.

On the heels of the “shockingly bearish” update two weeks ago, last week’s EIA-reported storage draw could be termed positive, if not “shockingly bullish” given expectations centered in the mid-40s. To some degree, the hefty reduction is likely seen as a “correction” to the prior week’s shortfall, in addition to its unfavorable comparisons to a year ago (92 BCF) and the five-year average (72 BCF).

When it comes to Europe, PIRA believes that with oil prices dropping quickly, the ceiling on spot gas prices will be moving down as well; no more so than during upcoming injection season of 2015. While a legitimate argument could be made that spot prices in the U.K. and Germany can trade above oil-indexed levels for sustained periods during the winter, it is almost impossible to make this argument for spring and summer. The amount of spare production capacity possessed by Russia alone during this injection period almost instantly puts buyers in a position to nominate more contract (oil-indexed) gas if the spot price is trading at a premium to contract during injection season.

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Press Release; Image: BG Group

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