Further rise in LNG freight rates spurs repositioning

An extended rise in Atlantic basin LNG spot charter rates has further widened the freight spread between basins, incentivising shipowners to ballast their vessels in the Pacific to the US Gulf coast via the Panama Canal to capitalise on higher Atlantic rates.

Argus' ARV5 round-trip spot charter rates for intra-Atlantic basin voyages rose to $110,000/d on Wednesday from $86,000/d on Friday, when rates had surged by $55,000/d in less than a month. The corresponding ARV4 rate for intra-Pacific voyages rose to $69,000/d from $60,000/d in the same period. The steeper rise in Atlantic rates appears to have incentivised some owners to reposition their Pacific basin LNG carriers to the US Gulf coast, even though they would be responsible for the ballast leg and any associated Panama Canal transit fees.

The empty 174,000m³ Aristos I and the empty 173,400m³ Kinisis have both operated in the Pacific basin in recent months, but are travelling eastwards from northeast Asia and have declared for Balboa, the Pacific entrance of the Panama Canal. These two vessels on Wednesday were travelling at 17.5 knots and 20 knots, respectively, quicker than the typical maximum speed of 16.5 knots for LNG carriers utilising natural boil-off gas, implying the ships are either supplementing with fuel oil or using a forcing vaporiser to regasify more LNG to run the vessels.

The faster-than-usual speeds indicate the vessels are looking to arrive in the US Gulf for first half of December loading, the current premium window in the market. Based on prevailing speeds, both the Aristos I and Kinisis could arrive in the US Gulf by 10 December, assuming there is no congestion at the Panama Canal.

The latest fixture heard in the market for a first-half December loading in the US Gulf closed at $145,000/d, with US LNG producer Cheniere sub-letting a vessel to German utility EnBW, market participants said.

If the Aristos I and Kinisis are chartered out on similar rates, the ballast leg costs — accounting for the loss of Pacific basin income at $69,000/d, boil-off usage at around $10/mn Btu — could be recovered with an Atlantic basin charter of around 42 days, should the owners be able to secure a northbound Neopanamax slot at the auction minimum bid of $100,000, based on Argus calculations (see table).

If the owners have already secured a regular Neopanamax slot, which typically costs around $665,000 for a ballast transit, its breakeven Atlantic basin charter would be even lower at 40 days.

The most expensive northbound Neopanamax slot awarded to an LNG carrier so far this year closed at over $1.7mn in August, for the 174,000m³ Maran Gas Kimolos. If the shipowners need to bid at these levels, the breakeven charter would need to be at least 61 days.

But the charter length required to make up the cost of the ballast leg — if owners are able to obtain rates at or higher than $145,000/d — has more than halved compared with a week ago. Moving Pacific basin vessels to the Atlantic was too risky last week, but with early-December fixtures closing at well over $100,000/d at present, the financial incentive has improved to a point where owners may take the risk, market participants said.

If more vessels choose to reposition from the Pacific to the Atlantic and increase available supply, rates would likely come under pressure and the incentive to ballast to the US Gulf would fall again. Several empty vessels intended for the 14mn t/yr LNG Canada plant are holding in the mid-Pacific, and would be able to arrive in the US Gulf via the Panama Canal in the first week of December under the same assumptions.

By Bonnie Lao