Atlantic LNG: Availability weighs on TFDE rates

Spot charter day rates for tri-fuel diesel-electric (TFDE) LNG vessels fell on Friday, as vessel availability increased in both basins.

Charter rates for spot fixtures west of Suez fell to $68,000/d, a decrease of $2,000/d compared with a week earlier, as more TFDE vessels were heard open for late September-early October in the Atlantic basin. The number of TFDE vessels open in August was low with only older steam turbine vessels readily available for spot charters, market participants said,.

But more TFDE vessels were heard open in the Pacific basin, leading to east of Suez rates widening their discount to Atlantic spot rates. Spot rates for charters east of Suez fell to $63,000/d on Friday, $3,000/d lower than a week earlier.

Vessel availability could increase further if loadings at the 5mn t/yr Cameron LNG slow, following an apparent declaration of force majeure by the project's Sempra-led consortium.

Firms with offtake from US liquefaction terminals, including operator Cheniere and offtaker Shell, have already covered the tonnage demand derived from this offtake ahead of the fourth quarter, market participants said, although may still have to seek spot charters if they seek to delay deliveries to capture the steep contango in near-curve prices.

But slower loadings at Cameron LNG and a delayed start-up at Texas' 5mn t/yr Freeport could lower tonnage demand, leading to firms holding longer freight positions. Total has offtake from both projects, having acquired a stake in Freeport from Japanese engineering firm Toshiba earlier this month. Total's LNG freight position was heard to be balanced based on Cameron production at its nominal capacity and Freeport loading its commissioning cargo in mid-August rather than early this month.

A tight inter-basin arbitrage and firms appearing less willing to delay deliveries in both basins has weighed on forward freight rates, although rates could still rise above $100,000/d, market participants said. Brokers were still being approached by firms seeking additional shipping capacity to delay October deliveries to November in the Atlantic basin, but few vessels were being fixed for this purpose, market participants added.

And while spot charter fixtures were expected to slip through the first two quarters of 2020, they were unlikely to reach the same lows seen in 2019, market participants said. Rates fell as low as $39,500/d in the Atlantic basin and $34,000/d in the Pacific this year. But scheduled increases in US liquefaction capacity through the first two quarters of 2020 could buoy tonnage demand, supporting day rates.

That said, there remains a reluctance among owners to fix vessels on six-month charter periods, market participants said, noting that firms were instead seeking fixed-rate charters for 12-month periods, to cover for a weakness in prompt spot rates in 2020.

Brokers and shipowners have expressed concerns in recent weeks that a slowdown in global liquefaction capacity growth against a large orderbook for 2020-22 delivery could lead to freight supply outweighing tonnage demand in the coming years, weighing on charter rates. And an ample number of vessels being ordered without associated term charters may be offered instead on the spot charter and short-term charter markets, further boosting vessel availability.