There should be significant LNG inventory re-stocking both in Asia/Pacific and in Europe this summer, due to the winter run on LNG.
For the LNG shipping market, the question is - who is doing the re-stocking and when, Poten & Partners’ Jefferson Clarke said in the latest of the company’s regular webinars.
Charterers undertaking short and medium term business for inventory re-stocking could prevent spot day rates dropping to around the $30,000 mark this summer, as seen last year, he said.
However, he warned that much of the inventory re-building would be seen in Europe and with many cargoes coming from the US, this would reduce the tonne/mile equation, compared to the much longer US to Asia/Pacific routes.
Demand should come roaring back this summer, providing the vaccines keep the pandemic under control. Oil and gas prices will rise with a disconnect between spot and term prices seen. In addition, gas will increasingly replace coal in Europe on pricing and there should also be healthy LNG demand out of China, Poten said.
As for supply, there should be enough LNGCs to cope with demand growth this year and into 2022, as the fleet can increase speed to cope with any increase. At present, the average speed of an LNGC is only 14 knots, whereas most vessels boast a service speed of 19 knots. However, higher speeds would impact on shipping costs.
Poten thought that the plethora of proposed US export projects would come but one of the problems currently was the ability to negotiate long term contracts to offtake the gas, while another headwind was that financial institutions were backing away from carbon-based energy sources, which could affect the developers ability to gain finance.
There are not many sponsored LNG projects around today, except Mozambique and Qatar, Poten pointed out.
Clarke thought that LNGC newbuildings were being discussed at present to replace the older steam turbine driven vessels and even some of the TFDE and DFDE types.
Given only an LNGC lifecycle of 20-25 years for newbuildings today, instead of the 30-40 years for earlier vessels, this would change the dynamics of the earnings needed to see a return on investment (ROI), making the earnings necessary much higher. “It is important that rates support the ROI going forward,” Poten said.
At today’s low interest rates, investors will be happy see a single digit ROI but inflation will set in, the webinar warned.