LNG tanker market improving on storage, China rebound

Higher LNG tanker floating storage demand, stronger demand for 6-12 month LNG tanker chartering and expected pick up in Chinese LNG consumption in the second half of 2020 is helping LNG tanker rates.

With lower LNG prices, demand for floating LNG tanker storage in the second half of March picked up, helping to prop up spot LNG tanker rates, which bottomed the end of February to mid-March, Jefferson Clarke, managing direct of the LNG group at shipbroker Poten & Partners told the attendees of the 14th Annual Capital Link International Shipping Forum.

Floating LNG storage demand is seen as a "safety valve" over the "next couple of weeks and even months", shrinking LNG tanker availability despite LNG cargo movement cancellations. Multi-month (6-12 month) LNG tanker charter demand is also up. According to Clarke, energy majors are "playing it very conservative" and want to ensure that they have vessel availability to deliver their LNG cargoes for the next winter season.

"They went from trying to sublet their [LNG tanker] vessels to now chartering in" especially since newbuild vessel deliveries are being delayed, said Clarke.

Storing LNG on tankers causes some of the LNG to boil off and is lost, unless tankers are equipped to liquefy boil-off gas. The boil-off rate is about 0.05pc/day. With a typical cargo equivalent to about 3.5 Bcf of gas, about 1.75mn cf/d can be lost.

Oystein Kalleklev, chief executive of vessel owner FLEX LNG estimates Chinese weekly LNG demand has dropped from about 1.5mn t to around 0.5mn t in mid-February because of the coronavirus.

Iain Ross, chief executive of ship owner Golar LNG expects Chinese LNG demand to ramp up. There will be a "a lot of industrial activity to try and recover some of the lost ground on closing their five-year plan" which ends this year, after the spread of coronavirus wears off, Ross said.

The global downstream LNG market will continue to grow "perhaps over the coming months" supported by low LNG prices said Ross.

There are no signs that the LNG tanker charterers will try to renegotiate or cancel their time charter contracts with vessel owners, despite LNG cargo demand cancellations on the back of reduced coronavirus demand, said Mark Kremin, chief executive of vessel owner Teekay Gas Group. Because of this, the company's earnings and financial guidance through the end of 2020 has not changed.

By Stefka Wechsler