Atlantic LNG: TFDE forward curve in contango

Prompt charter rates for LNG carriers slipped on Friday from a day earlier which, combined with strong falls in spot rates in recent days, resulted in the forward curve moving in to contango.

Spot charter rates for tri-fuel diesel electric (TFDE) vessels were assessed at $43,000/d on Friday, down from $44,500/d a day earlier and $51,500/d a week earlier. East of Suez spot rates also fell on the week to $40,000/d from $48,500/d.

A number of firms holding surplus shipping capacity under term contracts had been heard offering this tonnage on a spot basis at levels that may have undercut the market in recent weeks, market participants said, supporting availability in both basins. Japanese shipping firm NYK Line was heard sub-chartering the 177,400m³ Grace Dahlia this week for a middle or end of March Australian loading.

There remained some tonnage demand in the Atlantic basin, with some requirements posted by firms in recent days. Diamond Gas International, a wholly-owned subsidiary of Japanese trading house Mitsubishi, was heard to have fixed the 160,000m³ Wilpride for a mid-March US loading, while commodity trading firm Trafigura was heard to have fixed the 160,000m³ Wilforce for a 1 March Ras Laffan loading.

German utility RWE was also heard issuing a six-month requirement for US loadings. The firm has an agreement with Japanese utility Tokyo Gas to co-operate on LNG sourcing, trading and shipping. The framework aims to reduce costs through LNG shipping and trading optimisation using LNG supply contracted by Tokyo Gas, which has a 20-year deal for 1.4mn t/yr from Cove Point LNG.

The forward curve for charter rates is normally in backwardation at the end of winter, as a result of the seasonal trend in LNG demand. But weak demand across both the Pacific and the Atlantic basin in recent months, which was further exacerbated by the outbreak of the coronavirus in China, weighed on prompt spot charter rates, helping to leave the forward curve in contango.

The coronavirus may continue to have an impact on Asian LNG shipping markets in the coming weeks, particularly if cases of ships being placed under quarantine after visiting Chinese ports start to emerge across the region, market participants said. Operations at some of South Korea's receiving terminals may have been affected, market participants said.

At least 50 newbuild LNG carriers were expected to come on the market by the second half of this year and even more were set to come on the water next year, market participants said. And some of these vessels will remain unsecured for at least a number of months, which would allow them to compete with existing vessels on the spot market, market participants added. The newer vessels tend to have capacities of around 175,000m³, which could make them more competitive than older vessels with capacities of around 165,000m³.

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