LNG shipping looking for freight rates’ rebound, as more projects come online

In Hellenic Shipping News 25/07/2016

It’s hard to be ahead of the curve, when it comes to predicting future market conditions. All ship owners can do is analyze a particular market’s fundamentals and act on them. As such, back in late 2013, many Greek ship owners were investing heavily in LNG ships, holding a share of 31% of the total LNG carrier orderbook in terms of capacity. In its latest weekly report, shipbroker Alibra Shipping noted that at the time “billions of dollars in CAPEX were being pumped into into natural gas exploration, as well as building infrastructure such as liquefaction and export terminals, especially in the US. Some 180 LNG carriers were ordered between January 2011 to December 2014 – many of them speculatively. Of these vessels, 52 were ordered by Greek companies (29%).

Since then though, a lot has changed, which could lead one to claim that the Greeks got it wrong, one of the rare occasions in the history of shipping. In their defense, Alibra noted that “no one could ever have anticipated the shock drop in oil prices seen in mid-2014, which spooked energy markets and investors, leading to project delays, cancellations and crushing demand for LNG shipping. And that means vessel oversupply and depressed spot rates (you know the story). Most of the LNG carrier orderbook was ordered in anticipation of new liquefaction trains coming onstream, but depressed energy markets have delayed commissioning of important LNG infrastructure projects. This year alone, four projects have been delayed in Canada, plus those in Cameroon and Oregon in the US, and a number of floating LNG (FLNG) liquefaction facilities. However, since January, the Asia-Pacific LNG, Sabine Pass and Gorgon liquefaction trains and the second Gladstone LNG train have come online, which has helped improve vessel utilisation”.

Alibra added “How quickly markets change in this business. Just two-and-a-half years later, LNG freight rates, formerly the source of so much optimism, are low and around 88% of the current LNG carrier orderbook is to be delivered from 2017 onwards. Firm orders for seven LNG carriers have already been cancelled. Only four new LNG carriers have been ordered in 2016 so far, after Maran Gas and SK Shipping both ordered two. Maran has options for two more”, the shipbroker concluded.

Meanwhile, in the dry bulk market, Alibra noted that “it saw a small rise this week, with the middle-sized tonnage seeing some kind of upward movement.  Panamaxes saw the most thorough w-o-w increase, with rates increasing for all durations for both Atlantic and Pacific voyages, the largest increase being on the 2 year Atlantic rates, which stand at $7,650.  Meanwhile, some activity in the Capesize market at the end of last week/beginning of this week prodded the BCI over the 1020s mark, but little activity during this week has meant it saw a massive fall, all the way to the low 900s”.

In the wet market, the shipbroker said that “signs that the market is well into its summer slump continues with short-period rates falling since last week suggesting that July trading is coming to a close. Saudi Arabia’s Bahri is expected to take delivery of 15 new VLCC’s, but this is not expected to have much impact on rates. Aframax rates are set for further depression as benchmark routes in the past week lost 15% on the Baltic Exchange resulting from reduced refinery margins and oil trading. The BCTI closed at 433 points down 15 from the previous week. The BDTI however closed at 705 points having rallied by 32 over the same period”, Alibra concluded.

Nikos Roussanoglou, Hellenic Shipping News Worldwide