LNG carriers idling at sea may be a sign of floating storage
Liquefied natural gas carriers are taking longer-than-usual journeys to deliver cargoes and spending more time idling at sea in a sign some traders are starting to use vessels for storage. There may be other reasons for keeping the cargoes on the water, including logistical or weather issues, such as a monsoon in India. But with spot-market prices near their lowest since April 2016, sellers may be betting that prices will rise as the Northern Hemisphere heating season approaches.
“It is saying one thing for sure: people are not too worried about shipping length,” said Jean-Christian Heintz, head of LNG brokering at SCB Brokers in Nyon, Switzerland. “Whether they are waiting for a logistical or trading or pricing issue … there is no hurry in going back and loading the next cargo.” LNG carrier owners GasLog and Flex LNG are seeing increased inquiries from traders to use ships as floating storage. That will likely intensify as traders hold fuel before the heating season officially starts in October.
The use of floating storage this long before the heating season is unusual because of the costs of keeping gas in its liquid form. It is partly due to the shale boom that transformed the U.S. into the third-largest exporter, increased spot trading, linked prices increasingly to gas hubs rather than oil and spurred a global drive for flexible contracts. But floating storage is a risky business because anticipated heating demand may be softer, as happened last winter, and vessel charter rates may shoot up to new records.