SINGAPORE- Traders are temporarily storing liquefied natural gas (LNG) on tankers as they bet for a rise in winter demand to boost prices.
This, combined with US sanctions on COSCO-linked ships, have doubled spot LNG freight rates in the past month and is causing a shortage in availability of vessels, several industry sources said.
There are currently some 10 to 24 laden LNG tankers “floating” in global waters, according to data intelligence firms Kpler and ClipperData and Refinitiv ship tracking data.
Between 8 and 11 of them have been floating with cargo for up to 20-30 days, ClipperData and Refinitiv data showed.
“For the most part, this elevated volume of LNG waiting across the globe is a reflection of widespread oversupply,” said Kaleem Asghar, director of LNG Analytics at ClipperData.
“The longer floating times in the North Sea, however, suggest that some suppliers may be speculating that prices will rise in the run-up to winter, which may prove to be a risky position to take.”
Storing LNG on tankers is generally seen as a riskier bet than holding crude oil on the water, given higher storage costs and the fact that LNG cargoes degrade over time by evaporating.
Last winter, several traders were floating LNG betting that prices would spike as they did in late 2017, but that did not happen and some suffered losses on sales, traders said.
Apart from floating cargoes, some are taking a longer route to Asia hoping prices will rise further, a Singapore-based shipbroker said.
The Asian spot LNG price hit an eight-month high this week but is still at its lowest seasonally in three years, Reuters data showed.
Still, rising freight rates could mean that some traders currently floating LNG may discharge their cargoes and lease the tankers out,” analysts from Goldman Sachs said in a note on Friday.
“This would potentially further weaken near-term global gas fundamentals in addition to helping offset some of the current tightness in the freight market,” they said, adding that LNG freight rates have more than doubled over the past month to reach $120,000 a day on October 16.
Increasing supply from new projects is also expected to tighten vessel availability, traders said.
“The bottleneck of natural gas supplies is now moving to the shipping sector. As the consuming nation at the furthest end of the global supply chain, China shall be on alert of sufficient gas but shortage of vessels,” Daniel Liu, head of derivatives with Glencore Asia told an oil and gas event in Zhoushan on Friday. – Reuters