LNG

US President Donald Trump’s ending of the moratorium on new LNG export permits imposed by his predecessor Joe Biden in January, 2024 was seen as part of a series of planned policy moves to encourage more US energy production.

Global LNG imports were set to reach the highest in a year last month, as Europe's winter demand drew cargoes away from Asia.

A total of 38.12 mill tonnes of LNG was on track to be imported in January, up from 37.69 mill in December and the most since January, 2024's 38.73 mill, according to data compiled by commodity analysts, Kpler.

According to Kpler, Europe's imports were expected to rise to 11.82 mill tonnes, up from 10.87 mill in December and the highest since April, 2023.

While Europe's LNG imports were set to rise 8.7% in January from the month before, arrivals from Russia were forecast to drop to 1.60 mill tonnes, down 11.6% from December's 1.81 mill tonnes.

Europe's Russian LNG imports are increasingly uncertain, especially with the return of Donald Trump as US President.

Trump is strongly in favour of boosting US energy exports, and LNG shipments to Europe offer one of the best opportunities to do so, sources said.

If European countries agree to phase out imports from Russia in favour of US cargoes, this move would help meet several objectives.

These include putting further pressure on Russian President, Vladimir Putin, to end the war in Ukraine, as well as giving Trump a ‘win’ that may help ease the threat of new tariffs on Europe's exports to the US.

Surplus predicted

However, the global LNG market may move into surplus soon, making it in the interests of both Trump and US LNG exporters to try and limit Russian export markets.

Europe's US LNG imports were expected to rise to a record high of 6.7 mill tonnes in January, up from 5.20 mill in December and 11.7% above the previous peak of 6 mill tonnes in January last year.

In contrast, Asia's imports of US LNG were predicted to drop to 1.81 mill tonnes last month, down from 2.2 mill in December and the lowest since February, 2024, according to Kpler.

Overall, Asia's total LNG imports were also set for a decline in January, dropping to 24.48 mill tonnes from a 10-month high of 25.50 mill in December.

This decline was largely down to a milder-than-usual winter, which has trimmed demand in China, Japan and South Korea, the world's top three importers.

Relatively high spot prices have also cut demand, especially in China, where January arrivals were forecast to be 6.29 mill tonnes, down from December's 7.58 mill and almost 20% below the 7.83 mill seen in January, 2024. 

South Korea is to import up to 7 mill tonnes of US LNG per annum, dramatically changing its energy import strategy.

The European Union (EU) gas price cap, first introduced during the 2022 Russian gas crisis, expired last Friday, having not been triggered since its inception.

Italy’s incentive programme for gas and LNG operators is out of step with market reality, due to its championing of investments in infrastructure projects that will be underutilised.

New Institute for Energy Economics and Financial Analysis (IEEFA) research said better alignment of government and regulatory support with the markets was needed.

The existing regulatory programme may encourage excessive capital expenditure on redundant gas and LNG infrastructure, despite Italy’s recent declining demand for both fuels.

Italy’s gas demand dropped 19% from 2021 to 2024, while LNG imports fell 12% last year.

However, the country is on track to overbuild its regasification capacity, which is set to triple between 2022 and 2026.

As demand continues to decline, Italy’s LNG consumption could be less than one-third of its import capacity by 2030, IEEFA claimed.

Domestic energy company, Snam is the main beneficiary of this incentive scheme. The company’s regulated revenues increased by €272 mill (20.1% year-on-year) in the first half of 2024.

Of this, the vast majority (€160 mill) was from a higher weighted average cost of capital and regulated asset base growth in its gas transportation and storage segments.

In 2023, Snam’s regulatory revenues increased by €385 mill.

“Incentives to invest in infrastructure must be driven by demand. In the case of Italy, it’s currently the other way around, with regulated revenues driving infrastructure build out even if there is not enough demand to justify it,” said Ana Maria Jaller-Makarewicz, IEEFA’s Lead Energy Analyst, Europe.

“Time’s up for Italy to acknowledge its declining gas demand and that of its European neighbours. The country’s ambition to become a gas hub risks jeopardising the competitiveness of its energy sector by mis-allocating government support to gas projects that don’t offer long-term energy security solutions,” she said.

“Snam’s over-investment trend, shown in this straightforward work by IEEFA, is worrying. Any consistent de-carbonisation commitment requires dropping investments in gas infrastructure.

“To reduce the risk of stranded assets, investors and authorities should plan for an accelerated depreciation of existing gas infrastructure,” added Michele Governatori, Head of External Relations, Energy, at ECCO.

Snam owns 61% of Italy’s operational LNG terminals and 100% of two planned new terminals. The company supplies 95% of the Italian gas market and is the largest owner of gas pipelines in the European Union, with a combined length of nearly 38,000 km.

Regulatory support

In 2021, Italy’s regulator ARERA launched its Regulation by Objectives of Expenditure and Service (ROSS) programme to encourage accountability, support the energy transition and enhance performance-based incentives.

Despite this, Snam’s investments and regulatory revenues from expanding its gas operations have continued to grow.

At the same time, the tariffs that Italian domestic customers pay for natural gas remain among the highest in the EU, IEEFA said.

Although the ceasefire agreement between Israel and Hamas appeared to bring some respite to regional tensions, future Suez Canal transits will be a mixed bag for LNG shipping, Drewry Shipping Consultants said in a report.

UK energy giant, Shell has reported robust cash flow from operating activities (CFFO) of $13.2 bill for the fourth quarter of last year, a CFFO of $54.7 bill and free cash flow of $39.5 bill for the full year.

US LNG developer Argent LNG has chosen Baker Hughes, as the liquefaction solution and related services provider for its proposed LNG export facility in Port Fourchon, Louisiana.

Flex LNG has reported vessel operating revenues of $90.9 mill for the fourth quarter 2024, compared to $90.5 mill for the previous quarter.

The 4Q24 figures included $1.4 mill in EU ETS revenue. An equivalent amount was also recorded under voyage expenses for the period.

Net income of $45.2 mill and basic earnings per share of $0.84 for 4Q24, compared to $17.4 mill and $0.32, respectively, for the previous quarter.

The average time charter equivalent (TCE) rate was $75,319 per day during the quarter, compared to $75,426 per day for 3Q24.

Adjusted EBITDA was $68.7 mill, compared to $70.4 mill for the third quarter, while an adjusted net income of $30.8 mill compared to $28.7 mill for 3Q24.

Adjusted 4Q24 basic earnings per share of $0.57 compared to $0.53 for the third quarter.

In October 2024, Flex LNG closed a new $160 mill JOLCO lease for ‘Flex Endeavour’, completing the $430 mill in new financing, according to plan with net proceeds of about $97 mill.

The following month, the company signed an amendment under the ‘Flex Enterprise’ $150 mill facility to convert the non-amortising term loan tranche of $83.7 mill to a non-amortising revolving credit facility. Therefore, the company's revolving credit facility capacity increased to $413.7 mill in 4Q24.

Charter extensions

The same month saw the charterer of ‘Flex Courageous’ and ‘Flex Resolute’, amend and extend the existing timecharters, to include a new firm period from 2029 to 2032, following the last two-year option under the original charter contract.

This charter extension includes additional options for the charterer to extend each vessel by up to seven years in periods of two years, two years and three years.

During November, a 15-year new timecharter contract was signed with a large Asian utility and asset backed LNG trader for the ‘Flex Constellation’.

This charter will commence during the first or second quarters of 2026, and has a firm period ending in 2041. The deal includes options for the charterer to extend the vessel by additional two years up to 2043.

Flex LNG declared a 4Q24 dividend of $0.75 per share.

Øystein Kalleklev, Flex LNG Management CEO, commented: “We are pleased to deliver stellar financial performance for the fourth quarter in line with our previous guidance. Our time charter equivalent rate for the fleet of $75,319 per day was slightly ahead of guidance of $73-75,000 per day.

Adjusted EBITDA was $68.7 mill, also in line with guidance of close to $70 mill.

“We recorded substantial profits on our portfolio of interest rate swaps, as we increased our interest rate hedging significantly during the interest rate slump at the beginning of September. During the fourth quarter, interest rates rallied, and we therefore booked $20.1 mill of gains on these derivatives of which $5.1 mill were realised during the quarter.

“Hence, adjusted net income for the fourth quarter came in at $30.8 mill, corresponding to earnings per share and adjusted earnings per share of $0.84 and $0.57, respectively.

“During 2024, and in the fourth quarter particularly, we were able to secure new attractive backlog, which will insulate us from the current market weakness.

“Flex LNG is thus very well positioned with 62 years of minimum charter backlog equal to about five years of contract backlog per ship, on average. Furthermore, this backlog may grow to 96 years in the event charterers utilise all their extension options.

“In the latter part of 2024, we also carried out some further optimisation of our balance sheet with two refinancings worth $430 mill enabling us to raise net cash proceeds of $97 mill, while at the same time, both lowering our interest costs and increasing our debt maturity profile.

“Additionally, we increased our non-amortising revolving credit facilities from $330 mill to $414 mill, which reduces the cost of having such on-demand credit accessible. As a result, we closed the year with $437 mill of cash-at-hand with first debt maturity in 2028.

“The short to medium term outlook for LNG shipping is challenging given the numerous ship deliveries ahead of ramped up new export capacity. As such, we think 2024 to 2027 will probably resemble the period 2014 to 2017.

“There is one key difference, we will likely see a sharp increase in the demolition of older, less efficient tonnage, primarily steam tonnage which will prepare the ground for improved markets, similar to what was experienced in 2017.

“We are well prepared for the current weak market. We are therefore guiding financial performance in 2025 to be in line with what we achieved in 2024,” he concluded.

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