International:
Floating Storage for LNG Surges With More Ships From Qatar
The number of liquefied natural gas tankers identified as floating storage appears to be peaking, tightening the market for shipping and adding to a supply overhang.
The phenomenon happens when LNG tankers loaded with cargoes either travel slower than usual to their destination or wait at sea for a buyer.
The most recent episode can be traced back to Qatar’s decision to send out more ships ahead of maintenance work on its facilities. The result is making it more expensive for traders to charter a vessel on the prompt market in the Atlantic basin, replicating a similar bout of floating storage in Asia last year.
It’s another sign that abundant supplies of gas are weighing on prices across Europe. Storage sites on the continent are more full than usual after slack demand earlier in the season. Traders also have built up buffers to cope with potential supply disruptions at the start of next year with the expiration of Russia’s agreements to ship gas through Ukraine.
Qatar appears to have joined the floating game, with at least four vessels loaded but waiting outside the production plants at the biggest LNG producing nation. Two Qatari vessels are expected to deliver in India at the end of this month and in the first half of November, while normal voyages there take about three days, said Madeleine Overgaard, an LNG market analyst at data intelligence company Kpler.
Qatargas informed buyers in Asia that the shutdown of its two liquefaction production lines, or trains, at the Rasgas LNG facility is for planned maintenance. It isn’t clear how long the trains will be shut and shipments haven’t been affected.
“The majority remain in the Atlantic basin, however, we also observe some new floaters offshore Ras Laffan,” Overgaard said by email. “This new group consists of Qatargas-controlled vessels only. They have all just loaded earlier than would normally be expected. It is possible that plant maintenance in Ras Laffan could bring on such behavior.”
Kpler estimates that as many as 28 vessels are behaving as floating storage globally this week, up from 19 last week.
Bloomberg also included vessels that are taking long voyages, such as those skipping a shorter route via Suez Canal, and have been on the water for longer than 20 days. It may be normal for at least some shipments to take that long, since cargoes travel from the U.S. to Asia.
LNG vessels get tagged as floating storage by Kpler if they were loaded more than 10 to 14 days ago; if they signal vague intermediate points on their journeys; or if they log slower average speeds. Last year, about 30 vessels were considered floating storage in mid-November.
Some vessels such as Marshal Vasilevskiy, idling off Rotterdam, were loaded as early as the middle of August when LNG prices were at the bottom. That suggests traders may already have profited from the steep contango.
The use of LNG ships as temporary storage echoes the practice use in the oil market for decades. However, LNG is a super-cooled gas that needs to be kept at low temperatures, and some product is lost during a voyage, known as boil-off.
The rise of the floating storage comes as the LNG markets are oversupplied and demand is muted.
“Certainly we look at floating storage just like other players are looking at floating storage provided it makes economic sense,” Peter Abdo, managing director and global head of origination and LNG at Uniper Global Commodities, said in an interview in London earlier this month.
For some players, however, it may not be a strategy but lack of clarity on what to do with cargoes. Those have been slow sailing in the hope that when they go to the Far East an Asian buyer will snap it up at higher prices, Jason Feer, global head of business intelligence at Poten & Partners Inc. in Houston.
“There’s no point to go there to sail in circles,” Feer said. “From a trading point, then everybody knows you are desperate.”
While LNG prices have softened after gains in previous weeks, further direction depends on winter temperatures, geopolitics and the outcome of discussions on pipeline gas shipments between Russia and Ukraine, Oystein Kalleklev, chief executive officer of shipowner Flex LNG Ltd. in Oslo, said by email.
However, the market expects these vessels to unload in November. That’s in part because the spread between Asian and European prices is not sufficient to move the vessels between the regions, given increased shipping rates, and as further fuel price gains seen limited.
If an LNG cargo delivery is deferred from Oct. 15 until the beginning of November, this floating storage operation can yield as much as $0.69 per million British thermal units of additional profit, according to Anna Borisova, a research analyst at BloombergNEF.
“We should be around peak floating storage as the contango play has mostly played out now,” Kalleklev said.