LNG tanker rates flat despite Japan earthquake
Spot rates stable as market assesses demand; shipping capacity tight; long-term charters expected to rise
LNG spot tanker rates are flat, despite the catastrophic earthquake and tsunami that hit Japan last week, as the market tries to assess the country's near-term demand.
Although Japan is likely to import more LNG for power generation to compensate for a long-term loss of nuclear capacity, residential and business demand for electricity is expected to remain low in the short-term, while the country battles against a nuclear disaster and starts to recover from the largest quake on record.
Although one report said ship owners were asking $100,000 a day for spot LNG tankers, market sources said no deals had been done at this rate. Fees were around $70,000/d before the quake and the LNG shipping market has been very quiet since then, they added. Sources said some ships are still available in the market and awaiting work.
But long-term charter rates are expected to rise, as suppliers prepare to deliver more LNG to Japan, in a market with very little spare shipping capacity. "There are only eight tankers laid up at the moment," says Claire Wright, senior LNG market analyst at Lloyd's List Intelligence. "And these are cold lay ups, meaning it could take weeks before they're ready," she adds, with the ship owner needing to find a crew as well ensuring the vessel's refrigeration system is working and that it is seaworthy.
"Because of the time and money involved, ship owners would probably take them out of lay up only for long-term contracts, not spot deals," says Wright. And the tanker market is further squeezed because there are very few inactive vessels – ships anchored, but ready to pick up a cargo – compared with last summer, she adds.
The deadly earthquake and tsunami has taken 11 nuclear reactors offline, removing around 10 gigawatts (GW) of generating capacity from the grid. The Fukushima-Daiichi nuclear power plant has experienced explosions, with engineers working desperately to avert a meltdown.
Analysts forecast Japan would need to import just under 10m tonnes a year (t/y) of additional LNG to compensate for the 10 GW of off-line nuclear reactors, which would equate to around four to eight tankers a month depending on vessel size.
French bank Société Générale (SocGen) has increased its long-term Japanese gas-demand forecast, while also revising up its predictions for global demand as a result of non-Japanese nuclear plants shutting down for safety inspections. A number of countries have begun to review their nuclear plans after the troubles at Fukushima-Daiichi, including Germany, which has ordered seven of its plants to be shut, and China, which has halted approvals for proposed nuclear plants.
"Our forecasts indicate that: Japan will need to import an additional 5bn cubic metres (cm) in 2011, 10bn cm in 2012 and 4bn cm/y from 2013 to 2015 (with more upside than downside); an orderly withdrawal of OECD countries from the nuclear industry should then lead to an increase from 33bn cm in 2016, when the first reactors are permanently closed," says SocGen LNG and gas analyst Thierry Bros. Forecast Japanese demand has also increased because coal-fired plants have been hit harder by the quake than first realised, Bros adds.
Meanwhile, Asian suppliers and oil companies are rallying around Japan for spot LNG deals, with South Korea supplying 0.5m tonnes, according to reports. Indonesia may also export surplus supplies from its Bontang LNG plant to Japan, with its oil and gas watchdog, BPMigas, saying earlier this week that 20 cargoes were available for auction. Shell chief executive Peter Voser says his company will divert "as much LNG as we can to Japan".
Spot prices remained around $10-11/m British thermal units (Btu), with one offer of $12/m Btu for a US re-export cargo not taken up, according to Pan EurAsian.