The Argus Gulf Coast (AGC) six-month curve dropped on Monday as delivered prices in Asia and Europe fell and spot charter day rates rose.
Both European and Asian delivered prices fell on Monday, but the drop in AGC fob prices outpaced that of delivered markets as tighter availability for LNG carriers in both basins reduced the incentive to close deals on a fob basis.
Freight costs for LNG cargoes rose again on Monday, extending gains already seen at the end of last week. Spot charter day rates for tri-fuel diesel-electric (TFDE) carriers rose to $78,000/d in the Atlantic basin and $75,000/d in the Asia-Pacific basin, from $75,000/d and $69,000/d, respectively, on Friday.
Firmer charter rates could reduce the scope for inter-basin trade flows. A $10,000/d increase in charter rates is equivalent to additional costs of 12¢/mn Btu for delivering a US cargo to South Korea, compared with just 8¢/mn Btu for delivering the same cargo to Turkey and 6¢/mn Btu for a delivery to Portugal, assuming a standard-sized cargo sailing at 19.5 knots and unloading operations lasting 48 hours.
US cargoes are also less likely to benefit from generous ballast bonuses or low repositioning rates, compared with fob cargoes from countries such as Egypt or Oman which are closer to delivery markets and main trading routes, market participants said.
But the possibility of any US cargoes being cancelled this winter remains remote, given prevailing delivered prices along the six-month curve and barring a more substantial increase in charter rates. The UK's NBP October-March contracts were at premiums of $1.37-4.12/mn Btu to the corresponding Henry Hub price at Friday's close, which would be sufficient to cover the 15pc premium to the Henry Hub firms typically pay for feedgas, a 5pc discount to the NBP to cover the cost of regasification capacity, and shipping costs based on prevailing rates. Charter rates would have to rise to considerably more than $200,000/d for a netback based on European des prices to open a discount to the cost of feedgas.
That said, most uncommitted Atlantic basin cargoes heading to Europe may test the region's ability to act as a demand sink, to a greater extent than seen last winter given that the increase in US liquefaction capacity has not been mirrored by any increase in Europe's regasification capacity. US liquefaction capacity has risen by more than 25mn t/yr since the start of the 2018-19 winter, while European regasification capacity is unchanged.
Europe may still have sufficient spare capacity to absorb a large share of the increase in US liquefaction, given that its aggregate utilisation rate was still about 52pc throughout last winter. But limited scope for additional fuel-switching, coupled with strong competition from pipeline flows, may curb the region's ability to absorb additional volumes, particularly in the event of a milder winter.
