The pressure on LNG shipping spot rates will continue for another year on account of strong fleet growth. However, rates should strengthen from 2019 as fleet growth slows and trade remains strong, according to the latest edition of the LNG Forecaster report published by global shipping consultancy Drewry.
Spot rates (East of Suez) for modern LNG vessels averaged $33,000pd in the nine months to September 2017, an increase of 5% compared with the same period last year. While current spot rates are enough to cover operating costs of around $15,000pd, they are still below breakeven, which ranges between $45,000pd and $60,000pd. Drewry Maritime Financial Research calculates that the global spot fleet will make aggregate operating losses of USD 230m in 2017. Shipowners with substantial spot market exposure face continued challenges as Drewry expects pressure on the freight market to continue in 2018 on account of strong fleet growth.
“Having said that, we maintain our long-term bullish outlook for LNG shipping as fleet growth will slow down to 4% in 2019, from an average annual rate of 10% in 2017 and 2018 and trade growth will remain healthy at around 6.5% a year in 2019 and 2020,” commented Shresth Sharma, Drewry’s lead LNG shipping analyst.
Much of this trade demand will be driven by emerging and growing markets. In the figure above, Drewry illustrates its import forecast for five markets of particular potential, namely Pakistan, Thailand, Bangladesh, the Philippines and Myanmar. Although the demand potential of each of these individual markets might not be as great as China or India, their combined demand will be a strong driver of future LNG trade.
“According to our calculation the combined imports of these five countries would be around 32 million tonnes in 2020, creating demand for between 25 and 30 LNG carriers,” added Sharma.