LNG shipping market could rebalance in 2022 after ‘bubbly’ first half

LNG shipowners may expect to see lower fleet utilisation in the second half of this year but that will not necessarily translate into weaker charter rates, according to shipbroker Fearnleys.

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In its just-published LNG Shipping quarterly report, Fearnleys said more tonnage is now under charterers’ control through the next nine to 12 months.

But the broker flagged up the healthy trading environment for vessels.

“General fleet under-utilisation could be absorbed by charterers that prefer to 'lose' some money on shipping knowing they will more than compensate that from the cargo side,” the report says.

Fearnleys said the market has behaved “unusually” in 2021, with head of LNG market intelligence Gonzalo de Arteaga describing the first half as "bubbly".

It said the third quarter will see little extra LNG volume due onstream, fewer dry-dockings and more newbuilding deliveries. Strong Asian demand is expected to continue and European gas storages remain “very low”.

The brokerage said the fourth quarter is even more challenging to assess, but it expects additional US volumes to head to Asia compensating for expected newbuilding deliveries. It also sees Panama Canal capacity being an issue forcing cargoes to take longer routes.

Forecasting hiccups

Fearnleys, like other market commentators, admitted to being “wrong” in its forecasts for this year.

The broker had previously said it expected to see an upturn for LNG shipping in the second part of 2022 on the back of a recovery in LNG prices and higher fleet utilisation.

Fearnleys highlighted how the change in trade flows — with more US cargoes being pulled to Asia — has upped the sailing distance for vessels.

The broker said this “just swallowed up" the 19 newbuildings delivered in the first quarter of this year, along with existing ships, under one-year-plus term deals.

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Supply disruptions and strong prices also changed the picture.

As a result, Fearnleys questions whether the upturn seen in the first half will simply continue or if, in comparison, 2022 will prove to be a more balanced year for LNG shipping as more supply becomes available and prices soften.

Speculative order surprise

“While this does not mean 2022 will be weak for LNG shipping, it could look relatively weaker than 2021,” Fearnleys said.

“We remain confident that LNG shipping will grow strongly from 2022; however, we also note more orders placed with deliveries expected in 2023 and 2024 — 51 LNGCs to be precise — since October last year.

“With 34 LNGC orders so far in 2021, we have been surprised that a large number of them are speculative,” Fearnleys said.

It said the rise in orders is largely a consequence of the sharp jump in newbuilding prices, with options at yard priced around $10m below current levels.

The broker added that it is watching to see what will happen with the now-delayed orders for Mozambique LNG.

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Fearnleys also flagged up the effect of the incoming regulatory changes from the Efficiency Existing Ship Index (EEXI), Carbon Intensity Index (CII) and European Union’s Emissions Trading System from 2022.

It said Qatar’s Q-Flex and Q-Max fleet, which use diesel or ultra-low sulphur fuel oil, will be affected the most while two-stroke gas-injection vessels affected the least.

“The overall impact on steam turbines and DFDE [dual-fuel diesel-electric] vessels will be defined after calculations are performed for each vessel,” it said.

“Speed limitations is probably the most economical way to comply although we don’t rule out some retrofit work to make vessels more efficient.”