Spot charter day rates for tri-fuel diesel-electric (TFDE) LNG carriers fell on Friday from a week earlier, but they have risen significantly so far this month.
Charter rates for spot fixtures west of Suez were assessed at $122,000/d on Friday, down from $125,000/d a week earlier and at a $7,000/d premium to Pacific basin rates, which were also assessed at $125,000/d on 11 October.
Higher freight rates may have encouraged firms who have LNG vessels under long-term agreements to unload cargoes and sub-charter the tankers, with the increased vessel availability weighing on rates.
LNG spot charter rates had more than doubled since the beginning of September from around $60,000/d to above $130,000/d on 15 October. This was partly as a result of US sanctions on Chinese shipping firm Cosco, which likely impacted 12 LNG carriers, including four operational Arc7 ice-class vessels operating out of Novatek's Yamal LNG, with two more Arc7s due to be delivered in the coming weeks also affected.
But the impact may have yet to be fully priced in, particularly in the Pacific basin, market participants said.
The contango in northeast Asian LNG delivered prices offering an incentive for slow sailing could have also supported rates in recent weeks.
The Argus northeast Asian des (ANEA) November contract widened its premium to the December price to around 80¢/mn Btu at the beginning of October, which may have been wide enough to encourage firms to float cargoes.
But the ANEA December price was assessed at a 19¢/mn Btu discount to the January contract on Friday, too narrow to cover the cost of chartering a TFDE vessel for a further 31 days, particularly given the rise in freight rates since the start of this month. The added cost of floating a cargo for 31 days based on prevailing Atlantic day-rates and assuming a boil-off of 0.1pc per day would be $1.23/mn Btu. It would be around 89¢/mn Btu if freight rates were close to the $80,500/d they were on 1 October.
Ample LNG supply availability has helped keep the inter-basin arbitrage tight in recent months and limited the rise in tonnage demand — the number of vessels required to load each million tonne — as US liquefaction capacity has increased.
But the ANEA December contract rose sharply for a second consecutive day on Friday as new demand emerged in the region, while northwest European hubs weakened. This could drive more US-loaded cargoes to northeast Asia, and the subsequent higher tonnage demand because of the longer journeys than if the cargoes were delivered to Europe may tighten vessel availability again.
That said, although rates could still rise from current levels, they were unlikely to reach the same highs as last winter, market participants said. TFDE day rates rose above $200,000/d in November 2018, partly as a result of strong LNG demand in northeast Asia.
