LNG shipping battles fleet expansion

Earlier this month, Drewry Maritime Research released a report in which it said that 66 LNG are forecast to join the fleet this year.

In addition, 94 more LNGCs are scheduled to be delivered in 2025, inflating the fleet amid easing vessel demand, due to limited new capacity additions.

LNG shipping is poised for a balanced market, with rates softening in 2024/25. However, the supply-demand fundamentals, harsh weather conditions and geopolitical and canal transit risks will support rates.

However, much will hinge on the US presidential elections, sanctions on Russian LNG and European gas demand.

This year’s LNG shipping rates were lower, thus far than the 2022/23 highs but were still healthier than the pre-2019 levels.

Rates remained flat, due to subdued European demand, owing to ample inventory (93% full as of September), higher renewable and nuclear output, weak gas demand and futile revival of industrial growth.

Moreover, the influx of new LNGCs this year and the growing pool of idle steam turbine ships have softened rates (at least at a macro level).

Aiding demand was a strong Asian market, due to an extreme summer, along with China’s revived economic growth, which boosted the role of LNG in power generation.

Japan’s LNG imports also strengthened during August/September, despite the increasing role of nuclear energy in the power sector, while lower LNG prices supported the demand in cost-sensitive countries, such as India, Bangladesh and Thailand.

The US shipped LNG to Asia via South Africa, as Asian prices were at a premium over TTF, despite being lower than in previous years, coupled with lower shipping rates.

As a result, the US/Asia trade also spiked in 2024 over previous levels.

All of these factors supported rates this year, and Drewry expected a similar trend to continue in 2025.

Rates will improve year-on-year as European LNG demand recovers in 2025, absorbing the expanding fleet faster than this year. Moreover, LNG supply will also improve, with 55 mill tonnes of new capacity scheduled to be added next year - most of which will be in the US.

Winter demand bullish

Drewry was bullish on winter demand as ‘La Nina’ will result in severe winters. However, Europe’s high inventory, which was 94% full as of 4th October, 2024, will allow the region to enter the season with about 100% storage, well ahead of its November target.

The winter contango will be at play, supporting rates in 4Q24. Thus, rates were expected to reach a year-high by December.

However, a robust Norwegian supply and increased renewable and nuclear output will keep LNG imports in check, with faster restocking commencing in 1Q25. Therefore, Drewry anticipated rates to strengthen in 4Q24 and rally in 1Q25, followed by a slowdown in the subsequent quarters.

Several factors will influence the LNG shipping market. For example, any escalation in the Middle East, due to the ongoing tensions and conflict, could spike LNG prices and rates.

In addition, robust LNG demand from China, Japan, and South Korea will intensify the competition between Europe and Asia and support LNG rates in the winter. Increased US/Asia trade via South Africa will support LNG shipping economics (tonne/miles).

Recycling will pick up next year, as fleet supply will outpace liquefaction build-up, compelling shipowners to scrap older vessels.

This will provide some respite to the ‘oversupply’ conditions. However, much of the rebalancing will occur post-2026, with massive capacity additions and higher scrapping amid increasing scrutiny over methane slippage and GHG emissions.

Ample supply by 2027 will ease LNG prices (Drewry expected prices to be around $6-7 per MMBtu), making it affordable and accessible, boosting global LNG demand- especially in China, South and Southeast Asia, and South America.

In conclusion, Drewry said that the growing LNG trades (given increased supply and robust demand) will absorb vessel supply at a faster pace, further rebalancing the supply/demand fundamentals.

Therefore, the consultancy expected LNG shipping rates to recover from 2026/27, with a surge in rates for modern 2-stroke LNGCs.

Demand for these vessels will grow, especially in Europe, as stringent restrictions over GHG emissions will be implemented through the Fuel EU-Maritime and EU-Fit for 55 regulations.?

**This report was compiled before the mid-October rate crash and rumours of further future supply delays.