LNG Shipping Market Declines in Q1: Golar

The 1Q liquefied natural gas (LNG) shipping market declined from strong 4Q levels in line with historic seasonality, said Golar LNG, a LNG shipping company registered in Bermuda.

LNG demand growth in China and other SE Asian countries was largely offset by declines in Japan and Korea due to a combination of a milder than expected winter and the re-start of several nuclear facilities.  

Chinese 1Q demand was up 20% up on 1Q 2018. During the quarter LNG prices reached 3-year lows, which eliminated inter-basin trading opportunities.  At quarter end, LNG was trading at around 6% of Brent, well below energy parity.  

Atlantic basin cargoes from the US and Russia into Europe doubled by volume compared to 1Q 2018.  With these additional volumes remaining in Europe, ton-miles and shipping rates continued to fall throughout the quarter, with spot TFDE and ST rates reaching $40,000 and $24,000 respectively by the end of March. The recently introduced tariffs for US LNG into China have also limited US export volumes into China.

Shipping rates achieved so far in 2Q 2019 have been weaker than 1Q but rates and activity have now commenced their seasonal recovery.

The strong contango in the gas market with forward prices of $9mmbtu being quoted for December 2019 give solid support to an improved shipping market. The 2019 vessel demand growth of 15% is expected against supply growth of 9%.  

Further vessel demand growth of 14% is expected in 2020 with supply growth again lagging at 9%.  This reinforces our belief that LNG shipping will enter a period of structural shortage for the next few years.

Leading brokers continue to forecast a 10+ vessel shortfall at the end of 2019, increasing to more than 20 at the end of 2020. Rates are expected to reflect this from 2H 2019 and remain strong for the next two years. This has resulted in an increase in requests for medium to long-term charterers.

 Golar has recently concluded several charters with oil and gas majors and large LNG charterers. These charters are based on index-linked rates and secure full utilization of the chartered vessels.