Threatened strikes by LNG workers in Australia would shut-in around 10% of world production and prove “unprecedented”, John Fredriksen-controlled shipowner Flex LNG said.
Answering questions in a second quarter results briefing, Flex LNG chief executive Oystein Kalleklev said: “If those volume are curtailed prices will skyrocket. There will not be enough LNG in the market for sure.”
He said it would free up between 40 to 60 LNG carriers that are used to ship cargoes from Australia to Asia buyers but not immediately as charters would not know how long the strike would last which would create great inefficiencies.
Kalleklev said the loss of the 41 million tonnes per annum of production from Australia’s North West Shelf, Gorgon and Wheatstone LNG projects, comprising 10% of global volumes, would be “unprecedented”.
He compared it to the loss of the Freeport LNG’s production in the US 2022 which represented about 3.5%. But said this had a timeline for its restart.
While any strike would make the product market “immensely tight” and likely benefit LNG shipping, Kalleklev said he hoped the action would not go ahead and if it did that the authorities would step in.
“We need LNG to stay at cheaper levels if we are going to attract new consumers,” he said.
Kalleklev was also asked about the affect of the drought at the Panama Canal on LNG carriers.
He said the cut in transits has created a super-tight market at the Canal.
The CEO said waiting times today for those without a slot is almost 20 days in August. This compares with 26 days in November 2022 but this was in the busy winter season.
“Panama clogging is a problem that is not going away,” he said. “Panama is jammed,” he added, explaining that the canal was built for container ships before the US became a major exporter of LNG.
He said that Fredriksen’s LPG shipping company Avance Gas, where he is also CEO, is already re-routeing its vessels away from the Canal to avoid delays.
Kalleklev was also questioned about the LNG charter market, after US producer Cheniere Energy declared an early option to extend its hire on one of Flex’s vessels.
Today already above $100k per day for modern tonnage. Future curves show pricing for vessels above $200k for the winter. But no. of fixtures have gone down and those done are primarily relets.
On term rates, he said those for 10 years are hovering above $100,000 per day while 5-year deals are attracting around $115,000 per day.
Kalleklev said this makes the company “optimistic” about re-contracting its ships. Flex has two open vessels in 2027 and another pair in 2028 which he expects to re-fix at higher levels.
He revealed that Cheniere has another early option, this time for 500 days on the 173,400-cbm Flex Endeavour (built 2018) which comes up to be declared in the Spring.
Kalleklev said the likelihood of charterers declaring on their outstanding options on Flex vessels is “very high” given the 30% rise in the cost of newbuildings in two years and the position of term rates.
The ebullient CEO – who is becoming famed for his Flex-branded merch offered for the best questions during results call – was this quarter touting a Flex LNG boiler suit to celebrate the company’s first four dry-dockings.
Kalleklev said there were around $20m of costs associated with these with the time taken coming in at 77 days, below the 80 to 90 day guidance.
The chief was also offering some fetching shades in Flex blue alongside a running shirt emblazoned with the words “Just Flex it”.
He said the Flex team are competing in the Oslo half marathon in September. But blamed the number of quarterly presentations for “increasing his own deadweight”. The CEO “guided” on a sub-one hour 50 minute time to complete the 21.1 km course.
