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A small shift in the LNG market may mean a big boost for ship owners - Bloomberg

Logistic News - Published on Mon, 20 May 2019

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Bloomberg reported that with so much cheap liquefied natural gas around, traders are again looking at tankers to store the fuel in the hope of better prices. A long-established practice in oil trading, the complexity and cost of keeping natural gas in liquid form on ships for extended periods meant it wasn’t widely used until last fall, in anticipation of a surge in Chinese demand and prices. That bet backfired when a mild winter damped requirements for the fuel, forcing traders to discharge LNG and release the vessels, which caused a crash in spot charter rates.

Tankers Going Nowhere Indicate LNG Market Becoming More Like Oil

While it’s a gamble as weather-driven demand is unpredictable, price signals indicate the option to store LNG in vessels later this year is again becoming attractive, not only in Asia, but also in Europe. The price premium for later contracts, or contango, is building up for both spot Asian LNG prices and the UK benchmark, leaving traders weighing how to profit should they choose to store gas at sea.

Mr Nick Boyes, a senior gas and LNG analyst at Swiss utility and trader Axpo Group, said by email “We could see a lot of floating LNG storage from September and this could also tighten shipping rates before winter.”

Mr Boyes said that given the price gap, and with an estimated cost of storing LNG of 60-75 US cents a million British thermal units a month, “current freight rates allow for floating storage opportunities in September, October and November this year in both northeast Asia and Atlantic.”

JKM futures for December are about USD 2.30 per million Btu higher than September contracts, or a premium of USD 7.6 million for a 3.3 trillion British thermal units cargo. How much profit can actually be made is strongly dependent on the cost of renting a tanker and of keeping the fuel in liquid form at minus 162 degrees Celsius (minus 260 degrees Fahrenheit).

Mr Oystein Kalleklev, chief executive officer of Hamilton, Bermuda-based Flex LNG Ltd., a ship-owner and operator, said that “I think it’s more a question of who’s going to jump the gun first when it comes to floating storage. I reckon the first deals will probably be balanced contango trades benefiting both traders and shipowners as traders probably need to take some risk to get the maths to work.”

High storage levels in Europe means tankers are one of the few ways to benefit from the current contango. That would also benefit companies with extensive shipping capacity and shipowners that have battled with a collapse in spot charter rates since the start of the year.

GasLog Chief Financial Officer Alastair Maxwell, said that still, the industry has probably learnt the lessons from both 2017, when a sudden surge in Chinese LNG demand caught the market by surprise, and 2018, when early stockpiling, floating cargoes and disappointing winter demand resulted in excess LNG and lower prices.

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Posted By : Rabi Wangkhem on Mon, 20 May 2019
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