The LNG carrier rates are presenting a rapid increase lately due to the northern hemisphere winter that is approaching, with the rise being supported as much as by technical factors as fundamentals.
MSI Director Stuart Nicoll states that last year’s LNG surge was because of high lelevs of floating storage, which removed ships from position lists in Asia and Europe. On the contrary, this year, the LNG increase is also based to the US sanctions against COSCO, which led to joint ventures between China LNG Shipping and companies including Teekay and MOL being rendered unable to trade.
In the meantime, the European LNG storage is full and remains at high levels throughout the whole 2019, resulting to vessels waiting to get into terminals to discharge cargoes.
Mr Nicoll reported that the ups and down represent the unusual state of the market in light of a “global glut of gas”. The increased US production in comparison to low demand from Asia have led to the increased EU volumes, while also keeping the prices low through 2019.
This could be a fundamental shift to sustained lower gas prices but the full implications are not yet apparent. The key question is where the additional LNG will go?
Consequently, MSI proposes a re-balancing in the gas market may need slowing the US production, with the aim of increasing the prices and restore margins. Although at first this could be a challenge to LNG carriers, on the long-term it would be a gain from US projects yet to be developed, adds MSI LNG Analyst David Bull.
When, or even if, the Trade War is resolved, it is assumed that there will be a significant uptick in vessel demand when US cargoes start to flow back to China again. While there will be almost no shipping on the route during 2019 and limited prospect of a near-term resolution, we still posit a resumption in trade between the two countries at some stage in 2020, although this is indicative and subject to revision.
MSI supports that the sector now is between a decision-making state, which will in the future dictate the trajectory of LNG shipping for the first half of the next decade and beyond.
