Image: An LNG carrier at berth. The super-chilled fossil fuel is shipped in tankers to reach global markets. Credit: Shutterstock/ Oleksandr Kalinichenko
The LNG tanker market was in a tailspin in December. Europe’s energy crisis disrupted the status quo and caused multiple LNG carriers headed for Asia to change tack and sail to Europe instead, as charterers sought to profit from the region’s steep price increases. Data from investment research platform YCharts shows that gas prices increased from a fairly standard USD7.268 mmBtu (metric million British thermal unit) at the beginning of 2021 to USD38.3 mmBtu at the end of the year – a 427% increase and record high for the region.
“While prices have slumped over the past week, they are still more than five times higher than the average of the past five years,” Bloomberg reported on 29 December.
The crisis is the result of several factors coming together – primarily, a reduced amount of wind power generated in the region due to low wind speeds earlier in the year; curtailed Russian supply (Europe sources around 40% of its natural gas from Russia); and an increase in global demand as economies recover.
The pricing bubble enjoyed by cargo owners on the spot market has burst since December, as the influx of LNG into the region drove prices down. Vessels, however, continue to make their way to Europe, often without a buyer in place.
One example cited by Bloomberg is the Maran Gas Sparta, which MarineTraffic data shows was rerouted on 20 December as it was transiting the West Coast of Africa. Vessel movements show the 90,392 dwt vessel, currently on charter for Shell, doing a u-turn as it approached the Cape when it was likely on its way to the Pacific to reach eastern markets.
Five days earlier the vessel departed from the Equatorial Guinea island of Bioko – where the country’s LNG project is situated – after loading cargo. MarineTraffic data suggests that this cargo is still awaiting a buyer, as at time of writing Maran Gas Sparta was heading north off the coast of Morocco with an undeclared destination.
A look at the vessel’s sailing history over the past six months using the MarineTraffic Live Map shows that from 1 June it spent all of its time in moving cargoes between Australia and Asia, before it headed west on 25 November.
An exodus of US gas has also been seen heading across the Atlantic, and the same news source revealed on 23 December that there were 15 LNG tankers heading from the USA to either the UK, France, Spain, the Netherlands, Gibraltar or Malta. A further 11 US cargoes were also heading east with their destinations undeclared as they await buyers for the ultra-cool cargo during transit.
“Soaring spot gas prices in Europe are prompting some rare cargo movements,” analyst Alex Froley at consultancy, ICIS, told the Financial Times. In an article published on 21 December, Froley drew attention to a vessel scheduled to deliver a partial cargo of Australian LNG to Barcelona on 24 December. The larger part of the shipment was delivered in China in early December. “This is believed to be the first Australian LNG into Europe since 2009, when there were a couple of Australian cargoes to the UK and France,” said Froley.
Vessel freight rates have also been affected by Europe’s desperate bid to buy LNG. Reduced gas carrier availability in the Pacific has been noted by shipbroker, SSY, and in its December monthly shipping review said, “Vessel availability [in the Pacific] remained foreseeably low even for voyages from Australia into Northeast Asia” with those available realising “very healthy rates.”
Data from the Baltic Exchange, a source of independent maritime market assessments, supports this. It shows that charter rates for an LNG carrier to move cargo from Gladstone, Australia, to Tokyo, Japan, were at their highest ever seen in November, peaking on 26 of the month at USD436,955/ day. By comparison, on 4 January, rates had dropped to a more standard USD98,197/ day – less than a quarter of the rate demanded six weeks earlier.
A similar story could be seen on the Transatlantic route, from the Gulf of Mexico to the Isle of Grain in the UK. Rates to charter an LNG tanker also peaked on 26 November and stood at USD319,524/ day. On the same day in 2020, rates were amongst the lowest seen over a two-year period, and stood at USD115,566/ day.
As always there will be winners and losers. Cargoes currently in Europe seeking buyers are unlikely to realise the peak prices seen in late November or early December. Royal Dutch Shell, however, is expecting a “significant boost in profits in its natural gas division, thanks to soaring prices, when it reports its latest results next month.” The Guardian reported on 7 January that the oil major and largest producer and trader of LNG expects its Q4 2021 results to “be “significantly higher” year on year as the rocketing price of gas outweighs a drop in production volume because of unplanned maintenance works.”