Tankers carrying crude oil and refined products are wallowing below cash-breakeven. Their near-term prospects are grim. In contrast, spot rates for tankers carrying liquefied natural gas (LNG) are now highly profitable, with some vessels earning $125,000 per day.
“The gains have become more significant over the past couple of weeks, and current rates are a stark improvement from [rates] seen this past summer,” said Clarksons Platou Securities on Monday.
Fearnleys Securities described last week’s chartering activity as “frantic.” As Cleaves Securities Head of Research Joakim Hannisdahl put it: “Another week, another rally for LNG owners.”
While six-figure rates look impressive, they’re typical for this time of year. The good news is that LNG shipping — unlike crude and product tankers — is actually experiencing a normal seasonal upswing despite COVID.
The bad news is that LNG shipping is still not back to where it was in 2019 — and there are major concerns about rates in 2021 and beyond.
Rates have rebounded
According to Clarksons Platou Securities, spot rates for tri-fuel, diesel-electric (TFDE) propulsion LNG carriers are now averaging $112,500 per day, up 105% month-on-month. Rates for M-type, electronically controlled, gas-injection (MEGI) propulsion carriers are at $125,000 per day, up 89% month-on-month.
This is up sharply from mid-June lows of $30,000 per day for TFDE carriers and $39,000 per day for MEGI carriers.
But current rates need to be put in context. At this time in 2019, rates for TFDE and MEGI carriers were $140,000 and $150,000 per day, respectively. At this time in 2018, spot MEGI carriers were earning $170,000 per day, with a few vessels being booked at all-time highs of $200,000 per day.
LNG trading normalizes
Following COVID lockdowns earlier this year, the spread between LNG commodity pricing in the U.S., Europe and Asia narrowed. When that spread is too low, the arbitrage profit doesn’t cover the charter cost, so shippers cancel cargoes. That dampens vessel demand and rates, and decreases the volume at sea. One reported side effect was a plunge in transits of Asia-bound U.S. cargoes via the Panama Canal…
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