LNG

The Panama Canal Authority, which is trying to increase transits by liquefied natural gas carriers and other energy vessels and containerships, said it would again increase the number of ships that transit the waterway daily as water levels start to recover on the Canal after a prolonged drought blamed on the “El Niño” weather effects.

The US finished 2023 at the top of the liquefied natural gas exports league as shipments to Europe were ramped up to replace Russian volumes while Australia finished second because of maintenance, strikes and regulatory obstructions for future ventures and Qatar was in third place ahead of its massive expansion plans.

Iran has threatened to close the Strait of Gibraltar linking the Mediterranean and the Atlantic for shipping and without saying how such a move would be carried out and the threat from Tehran came as the UK condemned Iran as a “malign influence” in the world that was supporting current attacks on shipping in the Red Sea.

Flex LNG, the Norwegian shipping company with a fleet of 13 modern vessels and several chartered to the largest US exporter Cheniere Energy, reported higher third-quarter revenues and profits as global demand soared for cargoes.

“The gas crunch is not going away anytime soon and arbitrage between the US and import nations in Europe and Asia will stay at elevated levels supporting freight market economics,” said Flex in presenting its earnings.

Flex explained that about 40 LNG carriers in the global fleet were tied up in floating storage due to traffic congestion and contango - when the futures price was at a higher level than the spot price as has happened throughout the third quarter.

Flex’s vessel operating revenues in the third quarter amounted to $91.3 million to the end of September 2022 compared with $81.8M in the same three months of 2021 and $84.2M for the second quarter of 2022.

Net income increased to $46.6M from $32.8M in the prior-year quarter and $44.3M in the second quarter this year.

Charter rates

The Bermuda-based company’s average time charter equivalent (TCE) rates for the three months came to $75,941 per day versus $68,341 per day a year ago and $70,707 per day for the second quarter of this year.

“During the third quarter, ‘Flex Enterprise’ and ‘Flex Amber’ commenced their new seven-year time charters agreed in June 2022,” said Øystein Kalleklev, Chief Executive of Flex LNG Management AS.

“Additionally, ‘Flex Aurora’ was delivered to Cheniere as the fifth and last ship under the agreement announced in April 2021,” he added.

“Flex LNG today has 12 LNG carriers on fixed-hire time charters and one ship, ‘Flex Artemis’, on a variable time charter,” stated Kalleklev.

The CEO noted that Flex’s first fully open ship, after charterer’s options, is in the middle of 2026 with three other ships coming open in 2027.

“With 2027 the earliest newbuilding delivery window and newbuilding prices at around $250M, we are therefore upbeat about the prospects of re-contracting our ships at attractive levels thereby adding further backlog to the company,” said Kalleklev.

Rate derivative gain

“For the first nine months of 2022, total net income was $147M, fuelled by $75M gains on interest rate derivatives, as we have been ahead of the curve locking in long-term interest rates at very attractive levels before the Federal Reserve started to hike US rates,” he explained.

Flex said it planned to optimize financing for the remaining seven ships in the fleet with the aim of increasing its cash position by a further $100M while at the same time improving overall financing terms.

“We have now secured refinancing for four of the seven ships with net proceeds of $110M. We are thus already ahead of the $100M target, and we expect the cash release to grow further as we are also making good progress on the refinancing of the remaining three ships,” said the CEO.

“Given the strong freight market, our extensive contract backlog and our super strong financial position we are therefore pleased to declare an ordinary quarterly dividend of $0.75 per share which should provide our shareholders with an attractive yield of approximately 10 percent,” added Kalleklev.

The company noted in its presentation that the fleet had been acquired at “historical attractive prices” compared to the newbuilding prices today, while book equity values reflect historical costs adjusted with regular depreciations.

The Intercontinental Exchange, the US-based operator of global trading platforms and clearing houses, plans to launch LNG freight futures contracts for the Atlantic and Pacific Basins, adding to a portfolio of sector offerings already including Japan-Korea Marker spot LNG cargo and Dutch Title Transfer Facility European benchmark derivatives.

ICE is introducing the new LNG freight futures contracts based on price assessments from Spark Commodities, a provider of technology-based solutions for promoting market liquidity.

Singapore-based Spark is backed by French data firm Kpler and EEX, part of the Deutsche Börse Group.

“These new contracts - called the Spark30S Atlantic and the Spark25S Pacific LNG Freight Future contracts - are traded and settled in US dollars per day,” explained ICE.

The numbers in the contract names indicate the number of days it takes an LNG carrier to complete a return voyage on the respective routes.

The settlement price of the contracts are based on the Spark30S (Atlantic) and Spark25S (Pacific) LNG freight spot price assessments.

“Market participants can use the contracts to manage price risk in respect of round-trip voyages between the US Gulf Coast and North West Europe (Spark30 assessment) and Australia and Japan, Korea, Taiwan and China (Spark25 assessment),” ICE explained.

Atlanta, Georgia-based ICE said it planned to start offering these cash-settled futures contracts on March 22, 2021, subject to regulatory approval.

ICE said the freight contracts would form part of its global natural gas complex as the market manages freight price risk alongside existing Dutch TTF, UK National Balancing Point, US Henry Hub, JKM LNG (Platts) and the West India Marker LNG futures contracts (WIM LNG - Platts).

“We have been in close engagement with the LNG market for more than two years about the right assessment on which to base LNG freight futures,” said Gordon Bennett, Managing Director of Utility Markets at ICE.

“During that time, LNG freight markets have become increasingly volatile, significantly increasing demand for suitable LNG freight risk management tools,” added Bennett.

“We believe that our freight futures contracts, priced against Spark’s assessment, will provide the hedging tools the market has been waiting for,” he declared.

ICE said the freight futures would trade and clear alongside the highly liquid and global gas benchmarks on ICE.

Tim Mendelssohn, Managing Director of ICE’s partner Spark, explained the aims of the new product.

“After a summer of LNG freight rates at record lows, this winter followed with the highest LNG freight rates ever assessed, peaking at $322,500/day on January 8, 2021,” said Mendelssohn.

“This volatility necessitates new risk management tools as well as future orientated, tech-driven price discovery platforms,” he stated. 

The International Group of LNG Importers, involving 83 companies, has held a meeting in the Japanese city of Fukuoka and issued a statement on the future role of LNG as a clean and flexible solution for a responsible energy future.

Qatar Gas Transport Co, the Gulf state’s LNG fleet operator, posted an increase in net profits and revenues as it expanded to almost 70 vessels amid more efficiency and rationalized operational expenses.