LNG spot charter hit zero, could turn negative

LNG charter rates hit fresh lows

Sources concerned rates could fall further, backwardating or turning negative

Such low rates likely mean more steam ships scrapped or laid up next year

LONDON (ICIS)–LNG spot charter rates continue to decline as shipping sources become concerned that prices are shifting into backwardation and that negative rates are emerging in the market.

Negative rates are expected to hit steam-propelled vessels soon, with these already at zero, according to several sources on Monday.

Shipping rates have fallen to the lowest levels recorded by ICIS due to growing length in the shipping market, with over 60 LNG carriers delivered over the course of 2024 and more than 80 expected in 2025 and in 2026, according to ICIS data.

That means shipping capacity is growing faster than expected production increases over the coming two years.

Another source added last week that spreads between lower charter rates in December and higher rates in February could be deceptive.

They said rates for charters over the coming three months could quickly tumble as backwardation sets in.

Rates are usually expected to be in contango in early winter.

Putting December Two-stroke vessels at close to $10,000s/day, they added that “January and February won’t be any better, with the market really struggling under so many new vessels.”

Others who said rates of around $20,000/day were still fair for Two-stroke vessels last Friday also said on Monday that they had slipped below this level, as the market reaches more consensus over continued rate drops.

Sources also have mixed views on whether rates could drop even further.

“Who knows [if prices have bottomed now]” said one broker. “You think it’s going up and then it softens again.”

Some chartering agreements were also reported at the end of last week.

CHARTER AGREEMENTS

The MEGA 2-stroke Saint Barbara was chartered out to INPEX’s IT Marine Transport PTE (ITMT) for a loading from Darwin with redelivery to Japan in the low $20,000s/day.

But Bp chartered in the MEGI Two-stroke Global Energy for 19 December from the US Gulf for $10,000/day, with ADNOC chartering in a 149,000cbm SEFE vessel from Das Island between 15-30 December for a multi-month charter at the same rate.

NEGATIVE RATES

Steam vessel rates, most at risk of turning negative, were quoted at between $4,000/day-$11,000/day last week, with these quoted at zero on 25 November.

Shipping rates are normally assessed on a round-trip basis, as reflected in most physical chartering agreements.

If a vessel is let for multiple journeys, its re-delivery to a specified point is also usually included.

Although one source on Monday also said they thought prices had now hit a floor, hire rates could go even lower and trade in negative territory “to get closer to one way economics,” explained another.

This essentially means that no ballast bonus is included in a charter price, so that the owner must pay entire costs to move a vessel to its next desired location once a delivery is made.

One source said that every time the market expects charter rates have hit a floor in recent weeks, rates then soften further, while a third said that while negative rates may not come to place, “they are clearly now a very real possibility”.

“Some smaller vessels will probably now do the laden leg for zero as long as the vessel can be kept cold,” said another, although for most vessels repositioning is still expected to be covered and that most charterers are only looking at vessels of around 174,000cbm.

Steam vessel lay-ups are also being considered by some shipowners, they added, saying they had not seen this yet because of the higher costs.

“Initial lay-up fees can be over $1m, so we’ve not seen this happening yet.

“But I am sure next year a lot of steamers will go into lay-up …or just be scrapped,” they added.

Lay-ups can also cost around $20,000/day. Additional reporting from Lars Kjoellesdal