Atlantic LNG: Charter rates continue slide

Spot charter rates for LNG carriers in both the Atlantic and Pacific basins fell further on Tuesday, as charterers continued to offer sublets on unutilised tonnage capacity, weighing on the prompt spot market.

The spot day rate for a tri-fuel diesel-electric (TFDE) fixed west of Suez fell to $50,500/d from $51,500/d a day earlier, with the east of Suez rate slipping to $46,500/d from $47,500/d.

A number of firms holding surplus shipping capacity under term contracts have been heard offering this tonnage on a spot basis at levels that have undercut the market in recent weeks, market participants said, supporting availability in both basins.

The firm closure of the US inter-basin arbitrage, maintenance at the 10mn t/yr Cameron export facility, and fog slowing loadings at the 25mn t/yr Sabine Pass terminal have likely cut in to Atlantic basin tonnage demand.

And weak Chinese demand, slower loadings at Australian export terminals because of Cyclone Damien, and the suspension of operations at Shell's Prelude floating liquefaction project, have also similarly weighed on Pacific tonnage demand.

Firms with contractual volumes — particularly from high tonnage requirement regions such as the US — likely covered their winter requirements with short-term charters in addition to any long-term shipping capacity also held, rather than trying to secure spot vessels during a period of historically high spot rates.

But with most six-month winter charters set to end in the coming weeks as tonnage demand has weakened substantially, these firms may have been faced with unutilised vessels. This could have encouraged them to sublet the vessels, at levels below current market value to ensure that at least some of the term charter costs can be recouped.

Weak demand from Chinese buyers has failed to encourage floating storage in the Pacific basin, with freight demand per million tons of LNG lower for a delivery to the country from its biggest supplier Australia. This means that few vessels were required to replace vessels that have had to delay deliveries.

And suppliers to China located outside the Pacific basin, notably Qatar, appear to have been able to redirect exports to other demand markets. Qatar's Ras Laffan export facility had five vessels holding offshore at ballast on Tuesday, down from around eight a week earlier.

Low spot charter rates have tightened the inter-basin differential needed to encourage inter-basin flows of spot US fob volumes though. With delivery to northeast Asia from the US requiring around twice as long as the fortnight needed for delivery to Europe, northeast Asian delivered prices have to hold a significant premium to Atlantic des prices to draw spot fob cargoes in to the Pacific. But with this freight component lower, the premium required falls.

The inter-basin freight differential for US loadings stood at around 50¢/mn Btu for March loadings, wider than the inter-basin delivered price differential of 33¢/mn Btu.