LNG Shipping: High Supply Suppresses Rates as Trade Routes Shift

LNG shipping is undergoing major shifts since the start of 2024. In its latest weekly report, shipbroker Intermodal said that “during Q1 of 2024, the LNG shipping market experienced major disruptions and shifts that significantly altered global trade routes and market fundamentals. The year commenced with logistical challenges, particularly highlighted by persistently low water levels in the Panama Canal, which constrained LNG transits. Compounding these challenges, LNG carrier movements through the Suez Canal have been completely halted since mid-January, necessitating a strategic redirection of shipments along alternative routes”.

According to Intermodal’s Research Analyst, Ms. Chara Georgousi, “the demand for LNG in Asia has remained robust, fueled by competitive pricing and strategic stock-building. This pronounced rise in demand within Asia stands in stark contrast to the more subdued scenario witnessed in Europe, where LNG imports have been significantly impacted by internal market dynamics and alternative energy sources. Specifically, NE Asia experienced a 4.02% increase in LNG imports during Q1 of 2024 compared to the same period in 2023, with China notably leading this uptick with a 23.44% rise. SE Asia also saw a significant boost, with imports surging by 29.53%—India led this growth with a 44.78% increase, followed by Thailand at 31.17% and Pakistan at 15.7%. Conversely, Europe’s LNG imports in Q1 of 2024 were 14.84% lower than in Q1 of 2023, reflecting broader regional shifts in energy sourcing and consumption strategies”.

She added that “overall, during Q1 of 2024, a total of 29 vessels have been ordered, marking a noteworthy increase from the 19 vessels ordered during Q1 of 2023. Concurrently, the total deliveries for Q1 of 2024 stand at 12, reflecting a rise from the 9 vessel deliveries recorded in Q1 of 2023. The substantial rise in new vessel orders, coupled with a steady increase in vessel deliveries, suggests a market in anticipation of heightened demand for LNG”.

“Amidst robust LNG fleet growth of nearly 5% for Q1 of 2024, freight rates experienced downward pressure. Notably, the average spot rates for 174K cbm vessels have seen a reduction of 39.56% from Q1 of 2023 to Q1 of 2024, while spot rates for 160K cbm vessels have registered a 36.62% decrease. A similar trend was observed in T/C rates across different vessel sizes and contract durations within the same timeframe. For instance, the 1-Yr T/C rate for a 160K cbm vessel decreased by approximately 61.16%, while 174K cbm vessels experienced decreases in the range of 64.12%. Similarly, the 3-Yr T/C rates saw declines of about 44.30% for 160K cbm vessels and 48.39% for 174K cbm vessels”, Ms. Georgousi said.

Intermodal’s analyst added that “the 2nd-hand market has been notably active, with 5 ships changing ownership in Q1 of 2024. A strategic preference was observed for larger, newer vessels that not only promise improved operational efficiency and increased cargo capacity but also offer extended operational lifespans and incorporate the latest technologies for enhanced performance and environmental compliance. These acquisitions demonstrate the industry’s proactive stance in strengthening fleet capabilities in response to rising demand, underscoring the importance of economies of scale in maintaining a competitive edge in this dynamic market sector”.

“Remarkably, there have been no demolitions reported since July 2023, further indicating the fleet’s youthful profile and the industry’s focus on expanding and modernizing its capabilities rather than phasing out older vessels. Yet, if market conditions remain on a downward trajectory, we might see a rise in the demolition through the remaining year, particularly as older vessels complete their long-term charter commitments”, Ms. Georgousi noted.

“As Q2 of 2024 unfolds, recent escalations in the Middle East add a layer of uncertainty. One of the primary concerns is the risk associated with major trade routes, such as the Strait of Hormuz, which is a vital passage for global energy exports. If this strait were to be closed or deemed high risk, almost a third of the world’s LNG, which transits through this passage, could be affected. This scenario can lead to supply chain disruptions and provide support to freight rates due to the rerouting of vessels and longer voyage times. Such shifts may also challenge Qatar’s market position and strategic growth objectives, with broader implications for global LNG supply contracts and the security of energy supply”, Intermodal’s analysis concluded.

Nikos Roussanoglou, Hellenic Shipping News Worldwide