Liquefied natural gas (LNG) tankers are taking longer-than-usual journeys to deliver cargoes and spending extra time idling at sea in a hint some traders are starting to use vessels for storage.
There could also be other causes for keeping the cargoes on the water, including logistical or weather issues, similar to a monsoon in India. However, with spot costs near their lowest since April 2016, sellers could also be betting that they are going to rise as the northern hemisphere heating season approaches.
The use of floating storage this lengthy earlier than the heating season is unusual due to the costs of keeping natural gas in its liquid type and indicates how trading in LNG, the fastest-expanding fossil fuel commodity, is becoming more like the broader crude oil market. It is usually partly due to the shale growth that transformed the U.S. into the third-largest exporter, increased spot trading, linked costs increasingly to fuel hubs rather than oil and spurred a world drive for more flexible contracts.
LNG tanker owners GasLog Ltd. and Flex LNG have stated that they’re seeing increased inquiries from merchants to use ships as floating storage. That will seemingly intensify in September and past to hold fuel earlier than the heating season officially begins in October.
Cheniere Energy Inc., the most critical U.S. LNG exporter, mentioned last week it sees a premium in winter costs encouraging floating storage, especially considering the premium of longer-term prices to short-term ones, often known as contango. Lower spot shipping rates also promote the more extended use of vessels.