Golar sees LNG charter rates recovering in 4Q

A contango structure developing in LNG prices, coupled with increased fuel-switching potential, is expected to support charter rates for LNG carriers into the winter months, Bermuda-based shipowner Golar has said.

A combination of low near-term LNG prices, high summer inventories and an expected increase in US gas prices as a result of reduced oil production are expected to contribute to the formation of a contango structure in LNG prices, which could support charter rates for LNG carriers into the winter months, Golar said. Lower LNG prices, both in the spot market and in term contracts as a result of lower oil prices, could also facilitate a significant shift to gas-fired generation, bolstering demand for LNG and its freight, the firm said.

But the shipping market remains highly volatile, with an "increasingly unpredictable" inter-basin trade making tonnage demand per mile difficult to model, the firm said. Demand uncertainty related to the Covid-19 outbreak is expected to weigh further on LNG prices, raising the prospect of additional US cargo cancellations, Golar said, noting that more than 60 US LNG cargoes are believed to have been already cancelled this summer. LNG prices for delivery in November have already opened a sufficient premium to the October price to cover additional charter costs for using vessels as floating storage.

The firm's average time charter equivalent rose to $61,900/d in the first quarter of this year from $39,300/d a year earlier, but is expected to drop to about $40,000/d in the second quarter, based on fixtures to date and prevailing spot charter rates, the firm said. Golar's fleet utilisation rate rose to 94pc in January-March from 90pc in October-December, as none of the firm's vessels had to carry out dry-dock maintenance, but is expected to drop to about 80pc in April-June as a result of reduced tonnage demand, it said. The 170,000m³ Golar Tundra is also slated for dry-dock maintenance in June, the only LNG carrier in the firm's fleet with maintenance planned for this year.

The firm reiterated its strategy to reduce its exposure to the spot shipping market by seeking more term deals, although this may prove to be trickier in a low-prices environment, the firm's chief executive, Iain Ross, said. The firm still plans to spin off its tri-fuel diesel electric carrier business into a separate entity, although they "haven't quite landed on the right solution for this time" and are exploring new options at the moment, he said.

FLNG at the 'front of the queue' for new FID

Floating liquefied natural gas (FLNG) units may retain a cost competitiveness with more complex onshore projects, although no FLNG projects are expected to be ready for a final investment decision (FID) in the near future, Golar said.

Significant reductions in US associated gas production as a result of lower crude output, coupled with the high costs of non-associated gas production, are expected to result in higher Henry Hub prices from next year onwards, which may apply upward pressure on global LNG prices and discourage further investment in US export projects, Golar said. This may create opportunities for competitive projects elsewhere in the world, including in west Africa and specifically Cameroon, where the firm operates the 125,000m³ Hilli Episeyo FLNG. The facility is exporting its 39th cargo at present, having already been operating close to capacity over the past two years. But the firm does not expect any additional throughput this year as the Covid-19 outbreak has further depressed already-low LNG prices, Golar said.

Golar declined to comment on whether it plans to file any arbitration claims over the force majeure 12-months delay claim it received earlier this year from BP Mauritania. The firms are in discussions over a possible resolution following a procedure that was already included in the original contract between the two parties, Ross said, although he declined to provide an expected timeline for the current negotiations.

Golar is in "advanced and positive discussions" with building contractor Keppel and engineering subcontractor Black & Veatch, with the aim of revising the project's cost and time schedule, Golar said.

By Antonio Peciccia