Asia-Pacific LNG freight day rates for tri-fuel diesel electric, or TFDE carriers have slipped below 10,000/day to historic lows, and are just 14% of their mid-August values, raising concerns that some ships may need to lay up due to negative earnings, market participants said Jan. 27.
One of the LNG ship operators plans to lay up a less fuel-efficient existing carrier and instead charter another at the cheaper rates, they said.
A two-stroke LNG carrier has been chartered at $11,000-$13,000/day on the US Gulf-Europe route, with ballast bonus paid back-to-hub in the Gibraltar, brokers said. On a round-trip basis, this translates into a daily loss of $7,000-$8,000/day. The ballast bonus, which until recently was 100%, will be the biggest casualty, will gradually come down and may even disappear if the rates remain low, they said.
Platts assessed the two stroke Asia-Pacific LNG carriers day rate at $14,000/day Jan. 24, down from $90,000/day in early January last year, according to the S&P Global Commodity Insights data.
At these rates, it is not possible for the operators to cover their daily expenses and for owners to meet the capital expenses, market participants said. Head owners may lay up their ships, but the trading companies are likely to keep them floating to be flexible enough to get prompt cargoes, said a chartering executive in China.
“There is an increasing demand for LNG while tonnage is oversupplied, which the energy companies would be happy with. The long [term] time charter [TC] market is still stable. [Most] owners will not be affected as all ships are already under long-term TC. Only a few shipowners running their ships in the spot market would be affected, and these will be steam-run or TFDE/DFDE [ships],” an LNG market source said.
“Ships delivered recently have a higher CAPEX so the TC rate would be high as well. However, as long as cargo price remains high with good demand, the long term ship charterers will cover their loss anyhow,” the source added.
The matter is much more complicated because many of these ships were relet by long term charterers to operators at much higher day rates in 2024 and even earlier, an LNG freight broker in Singapore said. The current charterers are not earning enough to pay the rate at which they hired the ships and this can have a cascading effect on the cash flows.
“The biggest question which the LNG industry is now facing is whether to lay up some LNG carriers,” a freight broker in London said.
There was record high delivery of new LNG carriers last year while most of the production remains within Europe as there is no open arbitrage to move cargoes outside the continent, the broker said.
Close to 70 new LNG carriers were delivered in 2024, almost 10% of the existing fleet and another almost 80 will enter the fleet this year, shipping industry estimates showed.
“The cargoes to use these ships are at present not sufficient,” said a chartering executive in Paris.
The LNG order book is estimated around 350, for delivery over the next six years.
Earlier in January, the first LNG new building order for 2025 was placed with a South Korean shipyard around $261 million for delivery in mid-2027, sources in China, Singapore and France said.
The newbuilding orders of recent years were all destined for large LNG production projects for which contracts of lifting gas on a free-on-board basis have already been signed.
Delays
Many of these projects have been delayed for 1-2 years, said the same broker in the UK.
“So inevitably these ships get pushed into the spot market [for upto two years] where the supply is already high,” the broker said. It is currently common for a dozen LNG carriers in Asia-Pacific region to be waiting prompt at any given point of time.
A US decision in early 2024 to impose a moratorium on issuing fresh LNG export permits for shipments to countries with which it did not have free trade agreements, or FTAs, for keeping a check on local American prices, contributed to delayed projects.
The new administration in the US lifted the moratorium in the week ended Jan. 24, but the projects has already been delayed as investors were hesitant to release money or making fresh commitments, as exports were uncertain.
Had the moratorium not been imposed, another 100 new ships were needed globally to meet the upcoming demand of existing agreements, however with delays, even the existing fleet is a surplus, a freight broker said.
Cargo prices
The abysmal freight rates are making owners explore the possibility of laying up ships at a time when LNG cargo prices are firm.
The demand is strong for intra-region movement while freight is firmer during longer inter-continental voyages, currently restricted to routine execution of existing contracts, sources said.
The same delayed projects, which are keeping ships idle are also reducing the gas supply and keeping LNG prices firm, said a trading executive in China.
An importer in China, sold an Australian cargo FOB even though it had an offer for a two-stroke ship around $15,000/day. Due to the weak freight, margins that trading companies enjoy by delivering cargoes to receivers on a delivered basis have also eroded, sources said.
Source: Platts
