The spot rates for liquefied natural gas (LNG) shipping have reached historic lows with time charter rates following a similar trend. The decline has raised concerns about the financial sustainability of LNG carriers and the broader implications for the global LNG supply chain.
The drop in LNG shipping rates reflects a significant reduction in the costs associated with transporting LNG, says Joakim Hannisdahl, a shipping equity analyst and head of Norwegian investment firm Gersemi Asset Management.
Spot rates for LNG carriers have fallen dramatically with some vessels now chartered for as little as R267 450 (US$15 000) per day – a sharp decline from R1,5 million (US$85 000) per day during the summer months. This represents a 49% decrease in just one month. Similarly, time charter rates for three-year contracts on two-stroke carriers have dropped to approximately R1,1 million (US$62 700) per day, marking a 42% reduction year-on-year.
Dual-fuel, diesel-electric carriers and steam turbine carriers are now operating at or below their operational costs. This poses a risk to the financial viability of these vessels and could lead to reduced availability of carriers if the trend persists, says Hannisdahl.
The downturn is driven by several factors including high LNG inventories in Europe, weak demand for floating storage and oversupply of carriers. Additionally, delays in liquefaction projects have compounded the issue, leaving many vessels idle or competing for limited cargo.
The market saturation has created a challenging environment for LNG shipping companies. With demand expected to remain subdued through the European winter months, recovery to previous rate highs appears unlikely in the near term.
Industry participants have expressed concerns about the potential impact on future investments in LNG infrastructure and fleet expansion. A prolonged period of low rates could result in fleet contraction or reduced service frequency, further straining global LNG logistics.
Impact on South African market
The shift in global LNG dynamics could present opportunities and challenges for South Africa’s energy market. As the country explores LNG to supplement its power generation needs and reduce reliance on coal, lower shipping rates may make LNG imports more cost-competitive. However, potential contraction in the LNG carrier fleet could introduce risks to supply reliability, especially as South Africa works to develop the necessary infrastructure to support LNG integration.
