LNG Price Gap Fails to Boost Ship Rates as Cargoes Seen Scarce

Rates to ship liquefied natural gas are declining even as the gap between prices in Asia and Europe widens because too few cargoes are available, according to Arctic Securities ASA.

While the investment bank previously argued the premium for the frozen fuel in Asia would increase shipments between the regions, rates are retreating as the spread expands, Erik Nikolai Stavseth, an Oslo-based analyst, said in an e-mailed report today. The cargo shortage won’t change soon, and the end of winter may curb demand, he said.

“The spread has continued to widen, but freight rates are declining and the reason is a lack of physical volumes, meaning that vessels are unable to get cargoes despite the favorable pricing picture,” Stavseth said in the report. “We do not see the volume in the market changing notably near-term, and as we start to move out of the winter market, the momentum for freight rates seem to be somewhat softer.”

Spot cargoes for delivery in four to eight weeks cost a record $19.40 per million British thermal units in northeast Asia as of Feb. 13, according to World Gas Intelligence. The price fell 2 percent to $19, the energy research company said on its website yesterday, and in southwest Europe was unchanged at $14.50. Freight rates slid 8 percent to $115,000 a day, Morgan Stanley said in a report on Feb. 18, citing figures from shipbroker Poten & Partners Inc.

Long-term demand for LNG vessels is still growing, Stavseth said. Government approval of export facilities in the U.S. would improve market sentiment, according to the analyst.

Before it's here, it's on the Bloomberg Terminal.