LNG Shipping on Recovery Path: Golar

 

"The shipping market is showing strong signs of improving. As of today, the effective time charter rates being achieved in 4Q are more than twice that recorded in 3Q. An improving trend is expected to continue into 2018-2019 when shipping supply should lag demand created by increased production. At full utilization, every $10,000 increase in shipping rates equates to approximately $40 million additional annual operating cash flows across the entire fleet," says a statement from the company.

 

Demand growth has been supported by a combination of additional liquefaction volumes and rising ton miles. Eight liquefaction trains with nameplate capacity of 34 million tons that commenced operations in 2016 continue to ramp up. 

 

A further six trains including Sabine Pass T4 and Wheatstone and Yamal T1 with a collective nameplate capacity of 28 million tons have commenced operations during 2017 to date. Start-up of the 5 million ton Cove Point facility is anticipated around year-end. 

 

After four years of declining ton miles, the advent of US volumes and the commencement of contracts with their Far Eastern off-takers are also contributing to rising sailing distances. Year to September 2017 ton miles increased 10% relative to 2016. This upward trajectory should continue given that new 2018-2021 liquefaction will be dominated by US volumes.

 

During September vessels began to pull out of the spot market to service dedicated volumes. Rising LNG prices in the East in response to significant demand from China and Korea also resulted in additional arbitrage opportunities and ton miles as more US volumes headed further eastward. 

 

Approximately 1.9 vessels are required to carry US volumes to Asia, more than twice the number required to deliver Australian volumes. Spot rates have steadily increased from 2-year highs in early October to 3-year highs today with sentiment continuing to improve as we move into peak winter gas demand. 

 

LNG prices have also surprised to the upside. Current JKM prices at around $9.80 per mmbtu compare to $7.10 this time last year. Similarly, European prices of $7.70 compare to $5.90 last year. The increase in Asia has, to a large extent, been driven by very strong Chinese demand where year to October imports are up approximately 48%, to 29 million tons.

 

Looking to 2018, around 45 vessels are scheduled for delivery, equivalent to 10% of the current fleet. This compares to more than 12% expected production growth for the year. Growth in ton miles is expected to further tighten the market and this sentiment is translating into a notable increase in enquiries for term charters.