On September 26, Pareto analyst Eirik Haavaldsen predicted that liquefied natural gas shipping rates could exceed $1 million per day in the fourth quarter. At least some deals are already halfway there, according to a Freight Waves report.
Paying a million a day may seem crazy. But it all comes down to the profit a carrier can make on a load. If a carrier can make $200 million in profit moving a single cargo of LNG, he will pay six figures a day in freight. Or if Pareto is right, seven.
New maximum for LNG shipping rates
It’s not winter yet and short-term LNG shipping rates are already in record territory, not just for LNG shipping but for any commercial shipping sector. And these rates are expected to continue to rise.
Clarksons Securities calculated the average trip rates for the most efficient LNG carriers, those with two-stroke drive known as MEGI or XDF carriers, at $313,000 per day as of Monday. Benchmark tri-fuel diesel engine (TFDE) carrier rates were assessed at $276,700 per day.
“LNG carriers aim for the stars. Spot earnings have reached dizzying heights,” wrote Frode Mørkedal, an analyst at Clarksons Securities. “According to the brokers, owners can now achieve triple economy, meaning they are compensated not only for a regular round trip, but also for positioning trips. As a result, earnings on a round trip could be around $500,000 per day.”
Even without tripartite economics, charter rates are skyrocketing.
S&P Global Commodity Insights told American Shipper that, over the past week, the LNG carrier Yiannis was pegged to Shell at $400,000 a day for a voyage within the Atlantic basin and the Schneeweisschen was booked for early November at $ 360,000 per day by GAIL from India.
Rates have reached $300,000 a day at times in the last two winters. But the current market situation is unprecedented. The gas supplier Russia is at war, it has cut off supplies to Germany and someone has just sabotaged two gas pipelines in the Baltic.
The number of LNG carriers available for spot deals is exceptionally limited. As a result, the spot market is extremely thin. Almost the entire world’s LNG fleet is locked into long-term charter flights. In the past, more of those ships may have been “released” on the spot market to take advantage of skyrocketing rates. This time, the profits from buying and selling the cargo itself are more attractive.
According to Mørkedal, “Brokers note charterers and retain tonnage rather than sublease due to exceptionally high cargo earnings, making the option of having a vessel ready more lucrative than subletting the vessel on the spot market.” “.
Meanwhile, more ship capacity is being linked to floating storage. “From the beginning of October to the end of November, the LNG cargo markets have a strong contango structure of $10 per million Btu,” Morkedal explained. “This is a growing interest in floating storage. There are now reportedly a large number of loaded LNG carriers waiting offshore in southern Europe.”
The upper limits of spot rates
Over the years, extraordinarily high daily rates have been observed in multiple bulk freight shipping markets.
Rates for very large crude carriers reached $200,000 per day in the fall of 2019 and spring 2020. Rates for Capesize bulk carriers reportedly exceeded $200,000 per day in June 2008.
In container shipping, spot freight rates topped $30,000 per forty-foot equivalent unit last year. That’s about 30 times higher than rates for some years before COVID. It sparked an outcry among containerized cargo carriers, leading to accusations that the rates were “unfair” and represented a “price gouging”.
In bulk commodity shipping, which has much more experience with rate spikes caused by supply-demand imbalances, there is no such setback. When the freight rate reaches the point where it wipes out the commodity freight markup, the carrier simply refuses to book the trip.
Asked how high product tanker rates could theoretically be, Hafnia Tankers CEO Mikael Skov told attendees at the Capital Link New York Maritime Forum on September 21: “Once you have a full utilization, there’s nothing stopping rates from going up to any level other than if the freight gets to be so much of the total that it kills you. There’s really no limit until the freight gets really, really high.”
Scorpio Tankers (NYSE: STNG) president Robert Bugbee noted that his company fixed tankers on individual trips this summer at more than $100,000 a day “and not once have we received any phone calls from the heads of BP or Shell.” calling and saying, ‘What the hell are you doing fucking our guys?'”
Source: Freight Waves by Greg Miller, https://www.freightwaves.com/news/lng-shipping-rates-shooting-for-the-stars-at-500000-per-day