Lowest Ship Rates Since 2005 Boosts LNG Stored in Tankers: Energy Markets
A liquefied natural gas cargo ship prepares to berth. Photographer: Maurice Tsai/Bloomberg
Liquefied natural gas traders are taking advantage of the lowest shipping rates in five years and rising prices in the U.K. to store fuel on tankers and profit from higher values in coming months.
The costs to buy an LNG cargo in Trinidad & Tobago, store it on a ship for one month and transport it to Britain amount to $4.60 per million British thermal units, according to Navin Thakur, an analyst at London-based Drewry Shipping Consultant Ltd. Based on July delivery prices of $6.41 on London’s ICE Futures Europe exchange, profits from the trade amount to 39 percent, excluding import terminal and regasification expenses.
Charter rates have fallen as newer vessels entered the global fleet and demand declined from South Korea and Japan, the world’s largest LNG importers. July U.K. gas prices are up 24 percent this month as European buyers stockpile for winter and North Sea output wanes.
“The spot charter rates are low, so storage on ships will happen and is happening,” said Keith Bainbridge, a partner at shipbrokers RS Platou LLP in London.
Shipping costs have declined to $30,000 a day, the lowest price since 2005, from more than $45,000 last winter, according to quarterly estimates, Thakur said. Lower storage costs mean traders can lock in gains by selling into the forward U.K. market and holding cargoes until delivery.
“Available LNG liquefaction capacity exceeds current LNG demand by an uncomfortably large margin,” said Morten Frisch, a U.K.-based independent LNG consultant.
Keeping Cool
Drewry’s calculations include boil-off costs, where a portion of the ship’s cargo is lost in order to keep the rest in a refrigerated, liquefied state. The largest part is the cost of the gas itself, which is about $4 per million Btu for BP Plc- marketed LNG from Trinidad & Tobago as of today, according to calculations based on data from the Energy Intelligence Group.
“There are plenty of vessels available and rates are weak, and lots of new builds are coming out of yards,” said Tony Regan, a consultant with Trizen Ltd. in Singapore, formerly an LNG trader with Royal Dutch Shell Plc.
Qatar, the world’s biggest LNG producer, is idling at least eight tankers in the Gulf of Oman, according to AISLive data on Bloomberg as of June 3.
The cost of buying and storing a cargo at a daily charter rate of $30,000 for delivery this winter may average $6 per million Btu, according to Thakur. Japan paid almost twice that for spot LNG supplies, including shipping fees, in January.
Gas Prices
U.K. winter gas, for the six months from October, at National Balancing Point, Britain’s gas hub, has risen 11 percent this year and traded at $8.06 per million Btu yesterday. U.S. gas for the same period has fallen about 13 percent to $5.30 per million Btu this year.
In other markets, oil for December delivery settled at $81.42 a barrel yesterday, which is 3.2 percent down for the year so far, and a premium of $3.60 on next-month prices.
Utilities in Europe can buy pipeline gas from Russia, Algeria and Norway, while in Asia most countries rely on LNG, which is gas chilled to liquid form for transportation by ship.
Asian buyers typically monitor U.K. and U.S. gas price benchmarks, whichever is higher, and adjust their bids accordingly to attract cargoes away from the Atlantic Ocean market. Spot prices in the Far East jumped to as much as $14 per million Btu last winter, from about $7 in the middle of 2009, then retreated to about $6.50 in March, according to Japanese customs data.
Limited storage capacity in Japan and South Korea mean those nations often pay more for individual cargoes when winter temperatures fall below average or electricity use unexpectedly rises. Spot demand during winter may account for more than half of annual imports.
Producers such as Qatar Liquefied Gas Co., BP and Shell can typically profit more from diverting LNG cargoes than trading companies such as Morgan Stanley or Vitol Group, as they control more vessels and have access to greater supplies, said Debbie Turner, director of LNG at BS Energy Services Ltd.
To contact the reporter of this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net.
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