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Glut of U.S. LNG Cargoes Headed to Europe Sends Freight Rates Below Zero

Bloomberg
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February 8, 2022

By Ann Koh (Bloomberg) —

The cost to transport a shipment of U.S. liquefied natural gas to energy-starved Europe turned negative, a dramatic reversal that illustrates a growing glut of ships in the Atlantic ferrying American fuel.

Spot freight rates in the Atlantic crashed to -$750 per day on Tuesday, down from $273,000 in early December, according to Spark Commodities, which tracks LNG shipping prices. That’s the first time the marker has turned negative in Spark data going back to 2019, and means that — at least theoretically — owners are paying charterers to use their ships. 

LNG deliveries to Europe hit a record-high last month as traders redirected shipments toward the continent and away from Asia in order to take advantage of attractive spot prices. The enormous shift in trade flows has meant that there are now too many LNG vessels in the Atlantic Basin.

“If your vessels are going to Europe rather than Asia, the trip is much faster so the ships get back sooner and are then ready to go again. This creates more availability in the system,” said Tim Mendelssohn, managing director of Spark. “There just aren’t enough charter requirements to keep these ships fully utilized.”

Read more: Armada of LNG Ships to Europe Could Leave Asia in the Cold

The negative rate “highlights how current vessel charter payments for the Atlantic Basin do not cover the fuel cost of ballasting the vessel back to the load port,” said Mendelssohn.

The surge in shipments to Europe has left fewer vessels available in Asia, with freight rates in the Pacific Basin at $16,250 per day on Tuesday, according to Spark.

© 2022 Bloomberg L.P.

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