Freight Rates Drop Below Zero as More US Vessels Move to Europe – LNG Recap


Spark Commodities reported its first-ever negative spot liquefied natural gas (LNG) freight rate on Tuesday, as a glut of tankers in the Atlantic Basin moving cargo faster to Europe drove rates lower.

Spark priced Atlantic Basin rates at minus $750/day, reflecting what CEO Tim Mendelssohn said was increased vessel availability and reduced charterer requirements.

Europe is importing record volumes of LNG as prices remain above those in Asia. However, many of the vessels making deliveries have been secured for longer durations, easing the need for vessels in the spot market. Vessels available for spot deliveries, primarily those carrying cargo from the United States, also make faster trips to the mainland compared to sailing times to Asia. That released tonnage at a faster rate and drove spot rates down, Mendelssohn told NGI.

[Want today’s Henry Hub, Houston Ship Channel and Chicago Citygate prices? Check out NGI’s daily natural gas price snapshot now.]

He added that current charter payments in the Atlantic Basin do not cover round-trip costs. Atlantic fares are down from November’s peak of nearly $300,000/day, when heavy shopping in Asia encouraged longer trips. But warmer weather and pre-winter storage, along with high LNG prices, have reduced demand in Asia. It is more economical to move cargo to Europe in a trend that is expected to persist beyond the winter.

“Asia dominated LNG market action in 2021,” British consultancy Timera Energy said in a note on Monday. “Europe returns to the spotlight in 2022, with LNG market dynamics expected to be a key driver of European gas and power prices this year.”

European storage stocks were at around 36% of capacity on Tuesday, well below the five-year average of 50%. Prices are also supported by escalating tensions between Russia and Ukraine and the potential impact on gas supply.

Europe should continue to attract shipments after the end of winter in order to replenish its stocks. Timera said this momentum was reflected in bookings at European regasification facilities, where a “high proportion of slots” are booked this year.

“We expect LNG imports to Europe to remain strong for the remainder of this winter as the Title Transfer Facility (TTF) maintains a $2-$3 premium to the Japan-Korea marker ( JKM) through March,” BofA Global Research analysts said on Monday. “During the summer, JKM resumes its traditional role as a high-end market, but the spread at TTF is still too narrow to incentivize mobile shipments from the Atlantic.”

Europe imported a record 11.6 million tonnes (Mt) of LNG in January, according to Kpler, compared to 4.5 Mt in January 2021. The continent imported almost half of the volumes, or 5.35 Mt , from the United States last month, which shipped 1 Mt to Europe in the period a year ago, according to data from Kpler.

TTF prices jumped early Tuesday after President Biden threatened to shut down Nord Stream 2 if Russia invaded Ukraine, but the contract fell to a loss and ended below $26/MMBtu. Schneider Electric said unseasonably mild weather and the 46 LNG shipments expected to arrive in Europe this week weighed on prices.

In North Asia, spot prices rose on Tuesday as South Korea was reportedly in the market for more shipments, boosting demand in the region and pushing JKM’s valuation close to $29.

However, Europe continues to attract market attention. Russia has reserved no quarterly capacity to ship additional supplies to Germany through the Mallnow compressor station on the Yamal-Europe pipeline during the second and third quarters of this year, according to auction results on Monday. Spot flows to Europe via Mallnow have been halted since December 21. Russia has also not taken on additional quarterly capacity at other points on its border with Ukraine, raising fresh supply concerns.

Furthermore, Chevron Corp. also said it has resumed production of the second train at its Gorgon LNG terminal in Australia after completing maintenance, helping to offset other outages in the Asia-Pacific region.

Meanwhile, supply is increasing in North America. The Greek ship Yiannis is moored at Calcasieu Pass LNG in Louisiana while waiting to load the terminal’s first commissioning cargo. Venture Global LNG Inc. last week applied to the Federal Energy Regulatory Commission for permission to load the vessel as early as Wednesday.

Tellurian Inc. Executive Chairman Charif Souki said another Louisiana project, Driftwood LNG, will begin construction in April. Souki made the remarks in a video posted on the company’s website last week. Tellurian has not made a final investment decision on the Driftwood project and is currently working to secure financing. Site preparation work has already begun.

further north, Engie S.A. announced an agreement on Tuesday to buy certified natural gas from an Appalachian producer Range Resources Corp. The French utility is a major global gas distributor and the deal is another sign of growing interest in certified US supply among overseas buyers.


Comments are closed.