Global scramble for LNG tankers likely to boost gas prices further
Europe continues to pull significant LNG volumes
LNG tanker charter rates expected to surge heading into winter
Shipyards tap booming LNG carrier market
A lack of adequate natural-gas tankers due to surging demand for the fuel particularly from Europe in the wake of a power crunch and limited supplies is set to spur another spike in LNG costs and lead to higher chartering rates, industry sources said.
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“Short-term charter vessels are still available scantily but long-term is not. There’s not enough supply [of LNG carriers],” an industry source said.
Gas demand has been strong with Asia and Europe competing for cargoes and looking for supplies from the US and Qatar because of restricted Russian availability.
LNG prices have climbed following the Russia-Ukraine war, with facility outages worldwide adding to the gains. The latest casualty is the Nord Stream closure that will likely propel gas values higher, sources said.
The Nord Stream gas pipeline from Russia to Germany will be closed for an indefinite period after an oil leak was detected in a turbine undergoing maintenance, according to a statement from Gazprom via Telegram at 1621 GMT Sept. 2.
Europe continues to pull significant LNG volumes, maxing out regasification and downstream interconnector capacity over the past several months with deliveries averaging about 400 million cu m/d, S&P Global Commodity Insights said in its latest commodity briefing.
TTF values are likely stay a significant premium to LNG prices in Europe and Asia until new regasification capacity arrives in continental Europe early 223, S&P Global said.
Most Asian countries are also dealing with an energy crisis and refraining from purchases to cut soaring energy import bills as prices advance.
Asian spot LNG prices have risen tracking a tight Atlantic Basin, with JKM approaching all-time highs again in August. The daily physical assessment reached $71.01/MMBtu Aug. 25, the highest since March 7 when the benchmark hit a record $84.76/MMBtu.
JKM was still trading at a more than $20/MMBtu discount to TTF toward end-August as end-users in Asia, particularly price-sensitive markets such as India, Pakistan, and Bangladesh, largely shun spot supplies.
Charter rates swell
Charter rates are expected to increase further heading into winter on the back of longer-haul trips needed to bring more volumes into Asia as demand picks up seasonally, Jeff Moore, manager of LNG Analytics Asia at S&P Global said.
“New ships being added in the medium term could help mitigate some of the charter rate price spikes, but in the immediate future prices are still expected to pick up as these take time to build,” Moore said.
JKM is unlikely to price at a premium again to TTF as high spot prices cap Asian end-user demand.
“I think (spot) charter rates will fly when the winter season arrives,” a chartering source said.
A broker said spot charter rates in the Pacific could touch $400,000/day for a round voyage in winter.
Platts assessed the LNG day rate for tri-fuel diesel electric propulsion ships in the Asia-Pacific at $105,000/day Sept. 6, S&P Global data showed, up from $30,000/day Feb. 24 when Russia invaded Ukraine, and $320,000/day around Dec. 1 when rates increased tracking winter demand.
Chartering activity has been frantic ahead of a partial restart of Freeport LNG toward November. Many charterers are securing ships leading to a lack of LNG tankers for spot voyages, the broker said.
Most head owners have already chartered their ships for term charters but there could be some hidden tonnages that owners are keeping off the market in anticipation of winter demand, he said.
LNG carrier demand soars
The race to purchase LNG carriers has intensified with Qatar as one of the biggest buyers.
About 286 LNG carriers are on order globally until 2028 with 165 ships slated for delivery over 2024-2025, industry sources said. Most new buildings have a capacity of 170,000 cu m or more.
Shipyards in Asia have been working relentlessly to quench rising demand.
South Korea’s Daewoo Shipbuilding & Marine Engineering Co. in an August presentation said it expects a dramatic increase in LNG imports to Europe, leading to a strong LNG carrier market. The company has an orderbook stretching into 3 1/2 years.
Samsung Heavy Industries in a September report said its new orders stood at $7.2 billion over January-September, with LNG carriers comprising $6.1 billion of that value.
ENERGY | ELECTRIC POWER | LNG | NATURAL GAS | OIL 05 Sep 2022 | 11:30 UTC
Watch: Market Movers Europe, Sept. 5 9: Nord Stream gas flows indefinitely suspended as EU discusses market intervention
Featuring Hassan Butt
Commodity Energy, Electric Power, LNG, Natural Gas, Oil
Length 01:55
Topic Europe Energy Price Crisis, OPEC+ Oil Output Cuts, War in Ukraine
In this week’s Market Movers Europe with Hassan Butt, Associate Editor for EMEA Gas, looking closely at European gas markets:
OPEC+ meets September 5 to decide October production policy
EU Energy Ministers to discuss power market intervention
Nord Stream gas flows indefinitely suspended
Norwegian gas producers enter heavy maintenance period
VIEW FULL TRANSCRIPT
ELECTRIC POWER, ELECTRICITY, ENERGY, ENERGY TRANSITION
European Long-Term Power Forecast
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ENERGY, OIL, ENERGY TRANSITION
APPEC 2022
26 Sep 2022 | 00:00 UTC
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OIL | PETROCHEMICALS | SHIPPING 07 Sep 2022 | 07:00 UTC
FUJAIRAH DATA: Oil products stockpiles drop to 10 week low in week to Sep 5
Author Claudia Carpenter Wanda Wang Nicholson Lim
Editor Manish Parashar
Commodity Oil, Petrochemicals, Shipping
HIGHLIGHTS
Naphtha exports have picked up
Fuel oil imports from Russia at record high: Kpler
Congestion delays HSFO barge refueling schedules
Oil products stockpiles at the UAE’s Port of Fujairah dropped to a 10-week low in the week to Sept. 5, led by declines in light and middle distillates, according to Fujairah Oil Industry Zone data published Sept. 7.
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Total inventories were at 21.739 million barrels as of Sept. 5, down 1.1% from a week earlier and the lowest since June 27, the FOIZ data showed. At this time last year, stockpiles were at a two-year low, erasing all of the buildup as demand recovered from COVID-19. Stockpiles were now 22.9% higher than a year earlier.
Stocks of light distillates like gasoline and naphtha fell 2.8% in the week to 7.07 million barrels – a six-week low – and middle distillates such as jet fuel and kerosene declined 12% to 2.672 million barrels – the lowest in 13 weeks – according to the data provided exclusively to S&P Global Commodity Insights.
Only heavy distillates used as fuel for power generation and marine bunkers climbed over the week, rising 2.8% to 11.997 million barrels – the highest in three weeks.
Lackluster demand for low sulfur marine fuel has pressured premiums, market sources said.
“The LSFO [market] is completely quiet, which is why the suppliers are fighting [over limited demand],” a Fujairah-based bunker supplier said Sept. 7.
The Platts Fujairah-delivered marine fuel 0.5%S bunker premiums over the FOB Singapore Marine Fuel 0.5%S cargo assessments dropped to a more than a six-month low of $35.89/mt on Sept. 6, and have averaged $44.40/mt Sept. 1-6 compared with $93.94/mt in August, according to S&P Global data.
There is relatively stronger demand for high sulfur fuel oil in Fujairah, but terminal congestions have delayed barge refueling schedules, local traders said. This is likely to lead to higher inventories, they added.
“HSFO barges are spending more time queuing for berths lately, as more vessels, such as oil tankers, are calling for cargo works here,” a bunker supplier said.
Russia was the biggest origin of fuel oil to Fujairah in August, at a record 157,000 b/d, according to Kpler shipping data. Fujairah has become a major destination for Russian products since Moscow’s military invasion of Ukraine in February and subsequent sanctions caused some buyers to shun supplies from the country.
Naphtha exports have also been picking up, reaching 80,600 b/d on average in August, well above July’s pace of 40,900 b/d, according to Kpler shipping data. Japan, South Korea, China and India were the primary destinations for the petrochemicals feedstock.
Naphtha supplies
The ample supply of naphtha from the Middle East has weighed on the Asian market, which was already facing short demand from naphtha-fed steam crackers. Asia’s naphtha-fed steam crackers had lowered run rates due to poor earnings in the derivative downstream segments.
Planned operation rates have averaged in the low 80s% range for September, with average run rates among operators in major spot naphtha buyer South Korea at 78%, according to steam cracker operation data collated by S&P Global.
The bearishness in the overall naphtha market was reflected in the CFR Japan naphtha physical crack against front-month ICE Brent crude futures that fell into negative territory in July, and reached an 11-week low of minus $103.55/mt on Aug. 30, S&P Global data showed. The physical crack was last assessed at minus $39.35/mt at the Sept. 6 Asian close.
However, Middle East naphtha cargoes usable as splitter feedstock were in demand due to healthy margins for paraxylene production and obstacles in obtaining unsanctioned heavy full-range naphtha cargoes from other origins.
The spread between the key paraxylene CFR Taiwan/China marker and C+F Japan naphtha averaged $336.70/mt in July and $380.86/mt in August, over the typical breakeven of around $280-$300/mt, S&P Global data showed. The spread was last assessed at $391.50/mt at the Sept. 6 Asian close, keeping demand for such cargoes firm.
Light distillates stocks were 22.7% higher than this time last year while middle distillates were 27.29% below the year-earlier level. Heavy distillates have climbed 45.51% over the same period.
METALS 06 Sep 2022 | 11:15 UTC
Geopolitics, energy costs, shifting trade flows put Italian slab, flat steel imports in focus
Author Maria Tanatar Benjamin Steven
Commodity Metals
Topic War in Ukraine
Global geopolitics and economic sanctions have European steel rerollers looking for alternative sources of slab, forcing a persistent and long-term adjustment to trade flows that has decoupled the region from its traditional dependence on CIS area supply.
To capture the result of the transformation in steel slab supply chains, S&P Global Commodity Insights launched a new steel slab CIF Italy assessment, effective Sept. 2.
Russia’s invasion of Ukraine in February and resultant EU economic sanctions against Moscow have almost entirely stopped slab exports from the Black Sea. While semi-finished products from Russia are not subject to sanctions, traditional suppliers to Europe have been affected by sanctions against companies and individuals.
Of all the Russian slab exporters only Novolipetsk Steel or NLMK – unimpeded by sanctions – has continued to deliver slab to the EU, using exclusively non-Russian owned vessels. The producer has focused on shipments to affiliated rolling mills in Northern Europe and to some buyers in Central Europe, limiting its presence in the spot market.
Ukraine’s Metinvest has limited ability to export material, with military actions in the country disrupting production and blocking access to ports. The producer has only delivered small volumes of steel by rail to Central Europe with a subsequent portion routed through Baltic Sea ports. Metinvest’s Italian assets responsible for rerolling plate and coil have relied on the spot market for slab supply, predominantly from Asia.
Heavy plate production in Italy is represented by Marcegaglia, Metinvest Valsider and Trametal, NLMK Verona and Officine Tecnosider. These producers do not have steelmaking capacities in Europe, and they had to urgently switch to semi-finished supply from India, China, Indonesia and Brazil, among other spot suppliers, following the disruption of supply from Russia and Ukraine.
As the international supply from Black Sea ports within steelmaking groups has almost entirely stopped, the majority of slab in Italy now trades on a spot basis. Trade patterns are largely unchanged and rerollers continue to book bigger slab volumes twice a month.
Russian mills have been focused on slab trade to Turkey as access to other more traditional destinations have been blocked by sanctions.
Due to these factors and volatile freight rates, export slab prices from the Black Sea are no longer viewed as a benchmark by rerollers in Europe. In addition, skyrocketing energy prices have increased rerolling importers’ needs for a clearer import benchmark for semi-finished products to clarify the composition of production costs.
Italian rerollers have had to pay substantially higher prices for Asian slab in March to April to fill the supply gap. The lead times for Asian material, however, have been significantly higher in comparison to traditional slab origins. The combination of these two factors has resulted in production cuts in the second quarter and consequently contributed to the sharp rise in heavy plate prices.
Prices for domestic heavy plate in Italy peaked at Eur1,810/mt ex-works April 1.
European heavy plate prices have since declined – reaching Eur925/mt ex-works on Aug. 26 due to supply recovery and demand drop after distributors stockpiled on concerns about future availability and end-consumption slowdown.
At the start of September, Italian rerollers have pushed official offers up to Eur1,050-Eur1,100/mt ex-works, indicating a degree of price recovery.
Hot-rolled coil imports
Despite changes in the European market caused by sanctions against Russian finished steel products and the significant reduction of supply from Ukraine, as well as the introduction of export duties for steel in India, South European buyers continue to rely on imported hot-rolled coil.
The number of buyers in South Europe not affiliated with steelmakers has traditionally been higher and this situation has not changed despite the toughening of EU trade measures over the past few years. Location also makes delivery by sea easier in comparison to Northern Europe, where importers have to pay higher transportation costs.
Imported volumes into the South European market are typically higher.
A mill in southern Italy has been operating at significantly reduced capacities in the past couple of years. Relevant portfolios and volumes have as such been limited. Due to its location the mill traditionally competes with overseas suppliers with its volumes now largely substituted by foreign imports.
Although Russian and Ukrainian coil has disappeared from the South European market, import material has filled the gap – including of Japanese, Indian, South Korean, Taiwanese and Turkish origins. Anti-dumping and safeguard measures have not significantly affected trade flows, and sanctions are unlikely to impact the supply preferences of South European buyers.
Italian pipemakers have also traditionally been more able to alternate between domestic and import supply due to their required specifications of hot-rolled coil.
European steelmakers, including Italian mills, have increased HRC offers to Eur800-Eur850/mt for ex-works, motivated by rising energy costs.
Buyers have not accepted the increase yet, but competitive imports are cited among the key factors that might prevent Italian and Spanish price recovery. In Northern Europe, located farther from main ports, the pressure of import HRC prices is weaker due to a higher number of domestic producers.
In August, Italian steelmaker Arvedi stopped all operations at its Cremona plant for about five weeks. Acciaierie d’Italia was reported to have halted production at two of its three blast furnaces. The country’s rerollers have also taken longer summer maintenance breaks. As a result, the number of HRC offers and transactions from the mills dropped to close to zero last month.
Meanwhile, overseas suppliers remained active in the Southern European market, adjusting HRC offers and making deals in settling another benchmark.
To address this, S&P Global has increased the frequency of its Italian HRC import assessment to daily from monthly, effective Sept. 1.
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