Liquefied natural gas (LNG) shipping is set to turn in future into a liquid market in a manner similar to the oil shipping sector. Currently, the comparatively higher cost of LNG is prohibiting the mainstream switch to the cleaner fuel ahead of the International Maritime Organisation's new low sulphur marine fuel rule for 2020.
Indeed, the high cost of LNG became a "big issue in the final quarter of 2018 as rising prices in the Atlantic Basin made arbitrage opportunities between Europe and Asia uneconomic," said London's S&P Global Platts.
"Prices rose to as high as US$190,000/d in Q4 2018 given limited spot vessel availability from just $40,000/d in the fourth quarter 2017," it noted.
Total's LNG trading head Patrick Dugas said that the spike was due to 30 vessels being used as floating LNG storage in northeast Asia and that the price hike was an "event" and not a "structural" issue, the commentary said.
There are currently 520 LNG vessels operational globally. "I'm not sure the market was actually short of capacity," Mr Dugas was quoted as saying at the European Gas Conference in Vienna.
Mr Dugas predicts that the LNG shipping market would continue to evolve. "In a few years there will be a shipping futures contract," he forecasts.
Pointing to the well-evolved oil shipping markets, Mr Dugas said there was no reason why such a futures market would not be developed also in LNG.
"It would become part of a trading tool for traders to hedge their positions," he said.
The global LNG fleet grew at its fastest rate ever in 2018 with newer and better technologies. It remains to be seen whether this is enough to absorb the vast amount of new LNG supply coming on stream in 2019, mainly from the US, and still keep freight rates at affordable levels.
International Energy Agency gas analysis head Jean-Baptiste Dubreuil, speaking at the same event, said that LNG shipping was currently "not a market."
"It is a small fleet and the market is not liquid," Mr Dubreuil said. "There is no futures market so will take some time before it becomes a liquid market."
Mr Dubreuil added that LNG vessels typically are larger than some of the oil fleet, with a higher price tag, making the market less liquid.
Total's Mr Dugas, though, said it would "naturally" evolve into a more liquid, traded market.
Source:Schednet
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