Weak demand for US LNG among Asian buyers and an uptick in spot charter rates for LNG carriers could provide a boost to Europe's LNG imports in the coming months.
The inter-basin arbitrage for uncommitted US loadings is considered by most firms to be definitively closed for at least the second quarter of the year. This marks a change from early last week, when some traders were looking to market US fob supply to Asian buyers. The 174,000m³ New Nature, for instance, diverted in the mid-Atlantic away from Europe and towards the Cape of Good Hope on 25 April.
The waning incentive for inter-basin deliveries reflects weak demand for LNG among buyers in India and China, market participants said. This is despite delivered prices for LNG falling to near $11/mn Btu — typically the level at which second-tier buyers in China start to consider spot imports.
And any increase in Asian demand — for instance from South Korea, where LNG stocks are low — may not require inter-basin deliveries, given that Malaysia's 30mn t/yr Bintulu LNG export terminal looks likely to return to operations by the end of April. The terminal has experienced production issues since mid-April.
An uptick in spot charter rates for LNG carriers in the Atlantic basin may also disincentivise firms from sending uncommitted cargoes from the US to Asia.
Prompt charter rates for two-strokes — the most common carrier type for US loadings — and tri-fuel diesel-electric (TFDE) vessels have both held at historic lows since the start of the year, as the delivery of newbuild LNG carriers has outpaced the start-up of new liquefaction capacity.
But charter rates for both vessel types increased to their highest since October late last week on fears of an uneven positioning of LNG vessels in late May. This stems from planned maintenance at France's Dunkirk and Belgium's Zeebrugge terminals, which is likely to cause delays to some deliveries and could result in carriers being delayed in returning to the US Gulf for loadings in late May, according to market participants.
An LNG carrier typically requires 21 extra days to sail from the US' Freeport terminal to South Korea's Incheon via the Cape of Good Hope compared with the UK's Milford Haven, assuming a sailing speed of 17 knots. The additional sailing days to deliver to Incheon translates to an extra shipping cost of around 92¢/mn Btu, based on Friday's charter rates for TFDE carriers. The extra cost was 77¢/mn Btu on 22 April, before last week's increase in charter rates.
That said, some market participants view the recent step-up in charter rates as temporary, given that the uplift is principally caused by uneven positioning rather than an outright shortage of vessels. Many traders expect the repositioning of vessels to occur by early June. European LNG buyers may also experience increasing competition with Asia in the third quarter, as Asia's gas demand for cooling steps higher.
