Teekay: 2015 short-term LNG charter rates weak

June 18, 2015

Short-term charter rates for LNG vessels are likely to remain weak for much of this year, but this is forecasted to be the bottom of the market.

Talking about LNG trade, Teekay’s Research Projects Manager, Nicholas Schneider said that global LNG import growth has been moderate.

Global LNG imports increased 1% in 2014 to 239 million tonnes. During Q1-2015, global LNG imports were 2.4% higher than during the same quarter last year. Europe, Japan and Taiwan saw the largest increase in year-over-year LNG imports in Q1-2015, mostly due to lower LNG prices and new LNG supply in the Pacific region. However, increases in Europe and parts of Asia were largely offset by declines in South Korea and China. Mild winter weather across Asia resulted in high LNG inventories, reducing import demand, Schneider said in the first quarter LNG market update.

World LNG Fleet

The LNG carrier fleet now consists of 384 vessels and 137 newbuildings on order, not including regas vessels and small LNG carriers. Contracting for newbuild LNG vessels has slowed in 2015. After an all-time high of 63 orders in 2014, there have been only 10 orders to date in 2015. The LNG fleet increased by 9% in 2014 in terms of total cubic meter capacity, and another 2% in Q1-2015. There has been a significant increase in the number of vessels available on the spot / short-term market in Q1-2015. According to Fearnley, roughly 50 vessels were available as of May 2015, significantly more than the 10 – 20 vessels typically available throughout 2014. The increase in the number of vessels available on the spot market was due to new LNG vessel deliveries, project outages, and less long-haul arbitrage trade to Asia, Teekay said in the report.

LNG Charter Rates

Short-term charter rates declined in 2014, and have decreased further in Q1-2015 due to the increase in vessels available on the spot market. As of May 2015, short-term rates for modern vessels were roughly $30,000 per day, according to Clarksons.

Outlook

Schneider said the company expects short-term charter rates to remain weak throughout most of 2015. However, vessel utilization should improve towards year-end. The ongoing ramp-up of volumes from QC LNG in Australia, which shipped its first cargo in December 2014, along with the startup of four new exporting projects in the second half of 2015 will increase LNG trade.

Teekay’s long-term forecast to 2020 is largely unchanged from last quarter. Over 120 MTPA of new export capacity has reached a final investment decision (FID) and is in various stages of construction. In addition, despite lower LNG prices, new US projects continue to advance. Overall, Teekay expect vessel utilization to improve from 2016 onwards, Schneider said.