“The gains have become more significant over the past couple of weeks, and current rates are a stark improvement from [rates] seen this past summer,” said Clarksons Platou Securities on Monday.

Fearnleys Securities described last week’s chartering activity as “frantic.” As Cleaves Securities Head of Research Joakim Hannisdahl put it: “Another week, another rally for LNG owners.”

While six-figure rates look impressive, they’re typical for this time of year. The good news is that LNG shipping — unlike crude and product tankers — is actually experiencing a normal seasonal upswing despite COVID.

The bad news is that LNG shipping is still not back to where it was in 2019 — and there are major concerns about rates in 2021 and beyond.

Rates have rebounded

According to Clarksons Platou Securities, spot rates for tri-fuel, diesel-electric (TFDE) propulsion LNG carriers are now averaging $112,500 per day, up 105% month-on-month. Rates for M-type, electronically controlled, gas-injection (MEGI) propulsion carriers are at $125,000 per day, up 89% month-on-month.

This is up sharply from mid-June lows of $30,000 per day for TFDE carriers and $39,000 per day for MEGI carriers.

But current rates need to be put in context. At this time in 2019, rates for TFDE and MEGI carriers were $140,000 and $150,000 per day, respectively. At this time in 2018, spot MEGI carriers were earning $170,000 per day, with a few vessels being booked at all-time highs of $200,000 per day.

LNG trading normalizes

Following COVID lockdowns earlier this year, the spread between LNG commodity pricing in the U.S., Europe and Asia narrowed. When that spread is too low, the arbitrage profit doesn’t cover the charter cost, so shippers cancel cargoes. That dampens vessel demand and rates, and decreases the volume at sea. One reported side effect was a plunge in transits of Asia-bound U.S. cargoes via the Panama Canal.

Currently, said Evercore ISI analyst Sean Morgan, “rates for the larger vessels have jumped … as the arb [arbitrage spread], especially to Asia, has opened up. Cancellations have largely ceased and charterers are attempting to lock in tonnage amid seasonal demand shifts.”

The more LNG that goes from the U.S. to Asia as opposed to Europe, the longer the voyages and the higher the vessel demand. That’s what’s happening, which is good for spot rates and good for Panama Canal volumes.

“The arb has shifted from the U.S. Gulf/Europe — Henry Hub/Dutch TTF [hub pricing spreads] — to U.S. Gulf/Northeast Asia — Henry Hub/Japan and Korea JKM — during the last few weeks,” explained Morgan. This is “pushing up ton-mile demand on long-haul ships to Asia,” he said. “Delays at the Panama Canal are also extending voyages and helping to bolster global fleet utilization.”

Hoping for a cold winter

The colder the winter, the better for LNG shipping rates.

During a webcast last week, Hannisdahl commented, “It’s basically confirmed that we are in a La Niña weather pattern this year. That is positive for colder weather for the northeast Asia region — Japan, Korea and northern China. That is likely to drive demand, especially for heating.

“Back in the middle of the year we saw 45 cargo cancellations each month,” Hannisdahl said. “Cancellations are down to zero for December and LNG carrier spot rates are surging. The short-term outlook is really kicking into life.”

Seasonal rebound and stock pricing

LNG shipping stocks have performed poorly this year, as have almost all shipping stocks. Could the winter rate boost give these equities some support?

The complication is that different owners have different exposure to spot rates. Unlike crude and products tanker markets, shippers transport most LNG via multiyear contracts. Only a relatively small portion of voyages are spot.

According to Hannisdahl, “Flex LNG [NYSE: FLNG] is the main investible share in our opinion. It’s highly undervalued, has a modern fleet and has good exposure toward the current spot rate environment.”

Morgan cited improved market conditions and raised his Q3 2020 earnings estimate for GasLog Ltd (NYSE: GLOG) from a loss of 4 cents per share to a gain of 2 cents per share.

But the problem for LNG shipping equities is that investors may focus more on what’s around the corner than on current rates.

Spot rate rally may not have legs

Charterers do not appear convinced that the current spot rate rally has legs.

In a research note Monday, Clarksons Platou Securities analysts Frode Mørkedal and Omar Nokta wrote that “a key difference this year” involves the relationship between spot rates and three- to six-month time charters.

“Time-charter rates in the three- to six-month range are down marginally week-over-week at $68,000 per day for MEGIs, $53,000 per day for TFDEs and $38,000 per day for steam ships. A year ago, these charter rates were at $120,000, $90,000 and $70,000 per day, respectively, nearly in line with prevailing spot rates at the time. Charterers are clearly viewing this improvement as short-term in nature, driven by winter demand and wide LNG price arbitrages.”

Jason Freer, global head of business intelligence at Poten & Partners, said in a webinar last week, “Once the winter spike is over, we would expect to see spot rates come down and availability of vessels to rise.”

Orderbook is high

Freer said, “Our view is that the market is still going to be long [LNG cargo supply over demand] next spring and summer. As prices fall back out of the money, it’s fairly likely you’ll see some cargo cancellations out of the U.S. again. Not to the same degree we saw this year. But there will still be a significant surplus [of LNG supply] in spring and summer 2021.”

Yet another problem is the high newbuilding backlog for LNG carriers, which will add more vessel supply and create headwinds for rates. Orderbooks are historically low for crude and product tankers, bulkers and container ships. Not so for LNG.

“The current orderbook for LNG vessels is equivalent to 23% of the existing fleet,” said Morgan, who cautioned: “2021 probably will not be the panacea to the problems of 2020.”

Hannisdahl sees gross deliveries equating to 9% fleet growth next year (excluding scrapping, cancellations and delivery slippage). “We expect gross deliveries to be persistently elevated going forward,” he said.

COVID fallout: FIDs halted

Fleet growth should be roughly the same as it has been over the past six years. “But over the past six years you have had quite good demand growth,” said Hannisdahl. “The question is: Will we see the same good demand growth [in the coming years]? The answer to that is no.”

In the wake of COVID, final investment decisions (FIDs) for new LNG export projects have ground to a halt. “People are constructing what they were already constructing, but all the new investment decisions are being postponed. That’s the key issue here,” said Hannisdahl. Fewer FIDs equals less incremental volume at sea in the years ahead.

Seasonal strength notwithstanding, Hannisdahl doesn’t foresee another cyclical upcycle for LNG shipping until 2024-25. If he’s right, that’s too long of a wait for most equity investors.
Source: FreightWaves by Greg Miller, https://www.freightwaves.com/news/lng-shipping-rates-just-hit-125000-per-day#:~:text=According%20to%20Clarksons%20Platou%20Securities,%25%20month%2Don%2Dmonth

Lasse Kristoffersen, CEO of Torvald Klaveness and a high profile member of the Getting to Zero Coalition, said he fully supported the measures.

“Transparency is key to any development, not least on carbon. I believe business is ahead of regulators on climate currently, hence we need to enable businesses to make informed and adequate choices,” Kristoffersen told Splash.

Why should it not be public? I see no other argument than protecting the laggards

Kristoffersen said that while currently there is no real consequences of breaching IMO green schemes, he was convinced that businesses will start to put in requirements as long as they get access to the data, something that had become more apparent with the recent establishment of the Sea Cargo Charter by many of the world’s top charterers.

“To turn it around – why should it not be public? I see no other argument than protecting the laggards and that will not take us anywhere,” the Norwegian shipowner said.

Martin Crawford-Brunt, CEO of RightShip, pointed out that it has been almost 10 years since his vetting firm supported the development of the GHG Emissions Rating which compares a ship’s theoretical CO2 emissions relative to peer vessels of a similar size and type using an A – G scale, similar to what consumers might see when buying a dishwasher. This rating system was even adopted and painted onto one Odfjell ship (pictured).

“It is rewarding to see the increasing amount of collaborative partnerships and proposals aimed at driving more transparency and greater accountability in order to decarbonise shipping and align with IMO emissions targets. We are starting to see this across the industry, such as major companies signing up to a common measurement and disclosure plan linked to long-term carbon emissions reductions in the launch of the Sea Cargo Charter,” the RightShip boss said, adding that sourcing reliable data to inform freight choices would continue to be key to RightShip’s future.

Crawford-Brunt’s predecessor at RightShip, Warwick Norman, hit out at why it had taken shipping so long to accept energy ratings.

“This information has been publicly available since 2012 … against much industry push back and complaints,” Norman wrote in a comment left on the Splash site, going on to question why the industry would want an A to E rating as opposed to the EU standard A to G as this would lead to more vessels falling into the lower categories and not being utilised, he argued.

Dan Rutherford, marine director at the Washington DC-based International Council on Clean Transportation, said the move towards transparency ought to be viewed positively, but details still need to be hashed out, and it would be important that the data provided improves upon what’s already available through voluntary systems.

“By our analysis, IMO’s technical standard will reduce CO2 from existing ships by about 1% below BAU in 2030. For the ranking system to matter, it needs to be both transparent and ambitious enough to require carbon intensity reductions well beyond what the EEXI is expected to deliver,” Rutherford said.

source: https://splash247.com/shipping-reacts-to-energy-rankings-news/

“Mobile medical clinics out of shipping containers,” A&M senior Abby Launikitis, of Cypress, said.

She’s this year’s CEO of the student-run organization actually called BUILD.

It grew from an idea to unify the campus through a work project after the bonfire collapse tragedy.

“And we’ve done containers ever since then,” said Launikitis. “I believe after this fall we will have finished 32 containers.

A shipping container clinic was dedicated in Jordan earlier this year while others serve various needs in Guatemala, Costa Rica, Honduras and elsewhere.

“Maybe it’s a shot clinic, maybe it’s a full medical exam room, maybe they just use the container as an educational opportunity,” said COO and mechanical engineering student Roger Stark. “A base to have other programs out of.”

Volunteers build out the containers every fall semester while planning and raising money in the spring and summer.

A&M provides a construction site. However, the $100,000 annual goal comes entirely from donations.

“That’s why we love doing these interviews because one of our biggest donors this year hears about us through a Texas A&M magazine,” said CFO and graduate student Ivan Rivas.

A number of shipping container clinics recently supplemented hospitals dealing with spikes in COVID cases.

And a project currently in the works will help provide resources to folks even closer to home.

Clinics will serve support staff who work on the A&M campus who might not have access to ideal medical care.

“We like to say we’re “employed” by BUILD,” said Launikitis. “But it’s all volunteer work, so it’s really cheap employment.”

But the students said they can’t imagine anything being more gratifying.

Find out more about BUILD here: https://www.buildtamu.com/