Drewry: Fleet Oversupply Postpones Recovery of LNG Rates

Image courtesy: Shell

The recovery of liquefied natural gas (LNG) freight rates is not expected to start before the latter part of next year, mainly due to the excess vessel supply which is set to reduce only gradually, according to shipping consultancy Drewry.

Given the mounting pressure on freight rates and continuing fleet growth, which is anticipated to be around 13% during the year, Drewry said that it maintains “a bearish stance” on the LNG shipping freight rate outlook for 2017.

The movement in rates has so far been in line with expectations, as rates have been falling since the beginning of year. The spot rate for dual-fuel diesel-electric (DFDE) vessels (East of Suez) is currently around USD 26,000 per day, compared to USD 37,000 per day in the beginning of the year, representing a drop of 30%.

“The tremendous weakness observed recently in the freight market highlights the ample vessel supply. We are anticipating two years of aggressive fleet growth with supply expected to expand a further 9% in 2018 which will extend the period of weak freight rate development into next year,” Shresth Sharma, Drewry’s lead LNG shipping analyst, said.

Therefore, rates are not expected to start recovering until the end of 2018 when several new LNG trains from the US are set to be operating at full capacity.

“As a result, we have trimmed down our forecast for average spot freight rates in 2018 to USD 40,000 per day from the earlier expectation of USD 50,000 per day,” Sharma added.

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