Further decrease in LNG shipping cost likely with COVID-19

Oil&Gas Materials 7 April 2020 15:13 (UTC +04:00)
Further decrease in LNG shipping cost likely with COVID-19

BAKU, Azerbaijan, April 7

By Leman Zeynalova - Trend:

The average shipping fuel price is likely to drop because of the combination of two major shocks that have characterized the beginning of 2020: COVID-19 spread and the failure of OPEC members and non-OPEC producers to agree on a further supply cut, Trend reports citing the Gas Exporting Countries’ Forum (GECF).

“While OPEC members and non-OPEC producers are making efforts to find a global solution for stabilizing oil market, the COVID-19 outbreak has largely harmed oil market, with global oil demand drop entailing a free fall of oil prices. Consequently, the market might expect a further decrease in LNG shipping cost, which could encourage long-haul LNG supply and prop up LNG demand, which has been slowing down mainly because of the Covid-19 spread all over the world,” GECF said in its report.

In the short term, the commissioning of new LNG carriers, although unlikely to break the record number of 2018, is expected to be high enough to meet the growing LNG demand, GECF believes.

“However, spot charter rates might be volatile because of the shortage of LNG carriers on the spot shipping market. First, the start-up of various U.S. LNG plants requires more LNG carriers, since LNG deliveries from the U.S. to Asia entails longer trips. Second, current low LNG prices encourage market players to use LNG carriers as floating storage facilities. Third, the 2019 average LNG spot charter rate for steam turbine carriers equaled to the average medium- and long-term charter rates, estimated to stay at 50,000 USD/day and 45,000 USD/day, respectively. In this context, some market players could prefer to secure medium- and long-term charters to avoid possible volatility of spot charter rates, which would affect the availability of LNG carriers on the spot market and entail a rise in spot charter rates,” reads the report.

LNG shipping cost comprises mainly of LNG charter rate and shipping fuel price. Over the past few months, it has represented up to 40 percent of LNG delivered price, depending on trade routes.


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