LNG Canada cargo diverts mid-Pacific away from Asia

The laden 174,000m³ Qingcheng LNG carrier has changed direction mid-Pacific and may transit the Panama Canal to deliver to Europe, which could still be profitable at prevailing rates and delivered European premiums, Argus estimates.

If the cargo transits the Panama Canal and delivers to northwest Europe by the end of February, it would secure a price premium of $1.77/mn Btu, based on Argus' latest LNG des northeast Asia price and an assumption of a $1/mn Btu discount for des NW Europe LNG compared with the corresponding Dutch TTF contract.

European delivered prices have rallied in the past two weeks on a combination of quick storage withdrawals, colder-than-expected mid-term weather forecasts and worries of LNG supply tightness following an Arctic blast across much of the Atlantic and southern US, which has raised domestic prices above implied fob LNG prices. Asian demand has been muted on healthy inventories and the expectation of seasonally low demand from the lunar new year holiday in mid-February. The European gas price rally has flipped the import incentive from an Asian premium at the beginning of the month to a European premium by mid-January.

But the overall profitability of this mid-Pacific diversion to Europe depends on a combination of factors, including where the charterer intends to deploy the vessel, whether freight can be considered sunk or whether the charterer has pre-booked Panama Canal transits. Argus' latest lump sum Neopanamax lock auction price of $327,000 would apply in addition to the average one-way transit cost of about $712,000.

Assuming a daily charter rate of $27,000/d, if the charterer intends to deploy Qingcheng in the Atlantic basin following a northwest European delivery, it would be able to secure a 65¢/mn Btu price advantage even after accounting for additional freight, boil-off costs and associated fees from a Neopanamax auctioned slot (see scenario table).

If the charterer is looking to redeploy the vessel in the Pacific basin and considers freight to be sunk, there is still a price incentive of 23¢/mn Btu to deliver to Europe even assuming round-trip spot Neopanamax fees.

But this delivery scenario would be unprofitable if the charterer does not consider freight sunk and intends to return to the Pacific basin on a spot Neopanamax basis.

Arbitrage extends further into Pacific

The continued rally in European gas prices has extended the open arbitrage into the Pacific basin, with Middle Eastern LNG deliveries to Europe more profitable even via the Cape of Good Hope.

The Dutch TTF front-month contract for February has risen from a low of €27.77/MWh on 8 January to €39.45/MWh on 23 January.

And the 170,000m³ Methane Julia Louise, which loaded from the 15.6mn t/yr Gorgon LNG terminal in Australia, is set to transit via the Cape of Good Hope and deliver to Europe. If realised, this would be the first Australian cargo to deliver to Europe since February 2025, when the 174,000m³ Elisa Ardea delivered to France's 12.4mn t/yr Dunkirk terminal, based on data from vessel tracker Kpler.

But this cargo was loaded on a vessel under a long-term charter to Shell, and may be part of a portfolio optimisation play to backfill des obligations for Shell, given the firm has recently sent some supply from Trinidad and Tobago to the US, market participants said.

Elsewhere, the 174,000m³ Maran Gas Hector, which loaded from Australia's 8.5mn t/yr Queensland LNG, is headed westwards towards South America. If it delivers to Chile, it would be the first Australian cargo to do so since June 2022, Kpler data show.

By Bonnie Lao