Signing a forward contract today

Thursday, 25 June 2020
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Despite suffering a little bit of a setback, the long term LNG sector projections will remain the same, Michael Tusiani, Poten and Partners Chairman Emeritus claimed.

The sector will get through this, he stressed in a recent Poten webinar on LNG shipping.

The LNG industry has lost three to four months, due to the worldwide pandemic. The predicted trade slowdown equates to around one year for each month lost, Tusiani explained.

Long term forecasts to 2030 will not change but predictions for 2021 and 2022 will be lower, based on this scenario, he thought.

As projects have stalled worldwide, the questions going forward are - Will the signing of long term contracts make sense? What is a good price? What is a good five to 10-year timecharter rate?

Tusiani viewed the US as a swing supplier - a sort of insurance policy for suppliers and buyers against the other major world LNG suppliers.

As for the US - is there enough supply? Does the US just need to add on trains to its current supply facilities, or will it need other projects going forward to satisfy demand?

Jefferson Clarke, Poten’s Head of Shipping Analytics added that while there were still good deals to be had, were they needed?

One of the difficulties going forward was that some of the recent newbuildings were ordered on the back of US cargoes, given that the US/Asia trade was the longest in tonne/miles, equalling roughly two vessels for every million tonnes shipped.

However, in the shorter Southeast Asia/Australia to Asia trades, this figure was more akin to one vessel or less for every million tonnes.

Pick and choose

As a result of the number of vessels ordered for the US trades, potential suppliers are now able to pick and choose tonnage, as there is a lot of availability.

Senior Advisor, Gordon Shearer thought that trying to persuade a buyer to sign a long term contract today was very challenging. The fundamental issues were that there were no benchmarks to go on and no transparency in Asia.

Shipowners signing a long term contract today would not cover their expenses going forward, he said.

Tusiani argued that the LNG shipping business was traditionally a long term contractual sector. However, this trend had started to move more towards the spot market, as owners hoped for a rate boom.

In addition, newbuilding prices decreased and there was a lot of cheap money around. Five to seven year charters do not make sense, he warned, especially at $200 mill per asset. Owners originally ordering on the back of projects only made matters worse, as the fleet will increase in size.

Talking about the asset, he asked - Who’s going to buy a secondhand ship even at $180 mill? There are currently no buyers, unless the market returns to long term project covering.

Large projects, such as the Qatari North Field and the US Golden Pass, have resulted in newbuildings being negotiated but this just adds to the LNGC numbers going forward, he reiterated.

Tusiani thought that a project sponsor with a start up date of 2025-2026 would not need to charter a newbuilding delivered in 2021. He or she should wait until the project is ready before committing to a new LNGC, as the original vessel would be three to four years old by then.

On the positive side, he said there were a lot of good owners in the sector who were very cost conscious and were willing to be as flexible as possible in today’s market.

Clarke added that there were possibilities for floating storage today, which could take the older less economic units, such as steam turbine LNGCs, out of the market.

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