Record Low Shipping Costs for LNG: Market Trends and Future Outlook

Shipping costs for liquefied natural gas (LNG) have dropped to their lowest levels in five years due to an increase in newly built carriers outpacing shipping demand and shorter journey times that have improved vessel availability. According to Spark Commodities, Atlantic freight rates for the most common LNG carriers, which can hold 174 000 cubic meters, were at $4 250 per day on Tuesday, but fell to a record low of $3 500 per day on Friday. This marks an 82 % decrease since the beginning of the year and over a 90% drop compared to the same time last year.

In the Pacific, rates for similar vessels have nearly halved this year, reaching $11 000 per day on Tuesday, also the lowest recorded in Spark’s dataset and down nearly 80 % from last year. Deng Xiaoyi, deputy head of global LNG freight pricing at Argus, noted that while the global LNG fleet has expanded in 2024, LNG loadings have only slightly increased, resulting in an oversupply of vessels as the market anticipates a significant rise in LNG export capacity over the next 18 months.

Deng mentioned that charterers with excess shipping capacity and shipowners are competing to lease their available vessels, with some firms willing to drastically reduce their rates to avoid idling their ships and to recover operational costs. For older vessels with tri-fuel diesel engines, Atlantic rates recently turned negative, reaching a record low of minus $2 750 per day before improving slightly to minus $1,000 per day on Tuesday.

Negative freight rates indicate that shipowners’ earnings do not cover the fuel costs for returning to the loading port. Market analysts predict that LNG shipping rates may continue to decline into 2025, as new tankers are added faster than LNG production increases. Higher prices in Europe have also kept US cargoes in the Atlantic rather than shipping them to Asia, further increasing vessel availability.

Chinese tariffs on US LNG and a significant number of new vessels entering the market this year will exacerbate the situation, with freight rates likely remaining stable for the rest of the month. The US arbitrage to Asia is expected to remain closed through 2025 unless there is a substantial change in the price spread between Asian and European gas prices. As of Tuesday, the TTF price was $15,76 per million British thermal units, compared to $14,41 for the JKM.