Bloomberg Intelligence
Inventory draws hasten LNG recovery
The surge in liquefied natural gas prices and spot shipping rates is only seasonal and compounded by supply outages, logistical constraints and colder-than-expected weather, but we believe that the resulting natural-gas inventory draws in Europe and Asia could position the LNG market for a faster recovery.
Dwindling Storage Levels May Aid LNG Recovery
Falling European natural gas inventories could facilitate a faster LNG demand recovery. With Asia LNG prices far higher than Europe's, more cargoes are going to the Far East, driving a swift drawdown of European stockpiles. We expect this to continue for much of 1H, setting up a period in which importers likely need to restock. This could aid exporters such as Cheniere and Sempra, with a need to replenish supply boosting demand for U.S. LNG. Supply is expected to grow the most in the U.S., lessening the risk of North America cargo cancellations in 2Q-3Q.
Uncertainty remains surrounding Covid-19 lockdowns. We still expect European LNG imports to decline this year. Europe's gas inventory is just 65%, equal to the five-year average, based on Gas Infrastructure Europe (GIE) data.
LNG Ship-Rate Growth May Be Limited After 1Q
Elevated LNG shipping spot rates into March would be more beneficial to revenue and profit of companies with higher spot exposure, such as GasLog, Golar and Flex. As seasonal demand dissipates, supply outages are remedied and logistical constraints ease, rates could normalize and fall sharply toward the end of 1Q. The one-year time charter rate of just $49,000 a day, based on Fearnleys data, indicates an over-supplied LNG shipping market in 2021 and that rate growth could be capped after 1Q. Dynagas and Teekay are more than 90% contracted for 2021, which mitigates volatility but minimizes exposure to the spot market. Rates are 86% higher than last year at about $165,000 a day. Bloomberg reported that BP hired an LNG carrier for a record $350,000 a day.
