Atlantic LNG: Spot charter rates continue higher

Prompt charter rates in both basins rose on Friday from a week earlier as an open inter-basin arbitrage for spot US fob loadings, albeit tighter than in recent weeks, supported global tonnage demand.

Spot charter rates for tri-fuel diesel electric (TFDE) vessels west of Suez were assessed at $51,000/d on Friday, unchanged on the day but up from $42,500/d on 20 March. East of Suez spot rates also rose on the week to $45,000/d from $37,500/d.

Rising prompt charter rates in recent days lifted the front of the forward curve, although it was still in a slight contango through to the middle of the third quarter on Friday.

An open inter-basin arbitrage for prompt US loadings had driven inter-basin spot trade flows in recent weeks and buoyed tonnage demand, which in turn supported spot prompt charter rates. A delivery from the US Gulf Coast to northeast Asia requires around a month for each leg of the journey, compared with about a month for a total round trip to Europe.

Ballast hire components paid by charterers also rose over the past week, as shipowners began to stop offering discounts on hire costs for the ballast leg of the journey, market participants said. This could widen the inter-basin des price differential required to encourage charterers to take the longer journey to northeast Asia instead of Europe.

The inter-basin arbitrage tightened at the end of the week with steep drops in northeast Asian des prices. But the inter-basin arbitrage was not shut on Friday, as European delivered prices tracked northeast Asian losses and widened their discount to the Dutch TTF hub. The tight inter-basin arbitrage provided enough support for spot charter rates not to fall this week, as there was still prospect for inter-basin flows to lift tonnage demand, market participants said.

But the inter-basin arbitrage was likely too tight to offer any scope for reloads from Europe to India or northeast Asia. The window for European re-exports had opened in recent weeks, but sharp falls in Indian delivered prices over the past few days cut the likelihood of reloads. India declared a 21-day nationwide lockdown on 24 March that had already hit gas demand and led state-controlled Petronet LNG to declare force majeure on its ability to receive LNG cargoes.

The drop in Asia-Pacific des prices had weighed on US fob prices which could increase the increase the possibility of some cancellations at US export terminals, and in turn weigh on tonnage demand. US fob prices still held a premium to the country's Henry Hub gas hub on Friday, against which most US terminal operators price the feedgas for their LNG production. But a tighter premium could lead some offtakers to turn down their volumes, raising the prospect of greater tonnage availability as firms seek to offload unrequired shipping capacity. This potential was priced in to the spot freight market earlier this winter, when US fob prices had fallen below the cost of feedgas, weighing on charter rates.