LNG Shipping Rates Hit Multi-Year Lows Amid Oversupply and Weak Demand

Liquefied natural gas (LNG) shipping rates have dropped to multi-year lows and are expected to continue declining until 2025, according to analysts and shipping sources. The oversupply of new LNG tankers, built in anticipation of increased U.S. exports following a decrease in Russian gas supplies to Europe in 2022, has outpaced the growth of LNG production. Delays in liquefaction projects, caused by inflation and a shortage of skilled labor and equipment, have exacerbated the situation. As a result, freight rates for LNG tankers are expected to remain low until new production begins in late 2025.

Freight rates for LNG tankers in the Atlantic and Pacific basins have fallen significantly, reaching $20,750 and $36,750 per day respectively. This represents an 87% decrease in the Atlantic and a 78% decrease in the Pacific compared to the previous year. The lack of arbitrage opportunities between the U.S. and northeast Asia has led to more U.S. cargoes being delivered to northwest Europe. This shift in trade patterns is expected to result in a surplus of LNG vessels in both the Atlantic and Pacific basins.

The oversupply of LNG tankers is further exacerbated by the addition of new vessels to the market. Approximately 45 newbuild deliveries have already taken place this year, with more expected in the coming months. A shipbroker estimated that close to 70 new ships will be added to the global fleet of nearly 800 vessels by the end of the year. Tepid demand for LNG in Europe and Asia, coupled with full European storage ahead of winter, has weakened the demand for LNG vessel deliveries. Traders are not incentivized to store LNG on vessels due to the absence of a contango structure where future prices are higher.

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