LNG Freight Rates Hit $450,000 a Day as Russia Disrupts Fuel Supplies

In 2021, rates were in a range from $30,000 to $300,000. A record has been established several times since Russia’s invasion of Ukraine and disruptions to fuel-supply lines.

Freight rates are set depending on the type of ship, the distance sailed and the route. They are usually fixed weekly.

The record rates for LNG sailings contrast with plunging ocean rates for container boxships amid slowing global economic conditions and lower demand from retailers and factories to move cargo.

Brokers and shipowners say nearly all gas carriers in the global fleet are in operation to move LNG to customers, a majority of whom are in Asia. Meanwhile, U.S. natural-gas exporters are adding capacity for cargoes to Europe as the continent works to cut its dependence on Russian supplies.

LNG-laden ships are facing waits as long as four days to unload cargoes at some Western European ports along the Mediterranean Sea. The delays are the result of delivery volumes surging in recent months and few ports being equipped with terminals that can convert the LNG back to its gas state, according to shipowners.

“Every natural-gas buyer who is serious has taken LNG carriers into their portfolio,” said

Omar Nokta,

head of shipping research at New York-based financial adviser Jefferies. “There is very limited capacity out there and it’s super expensive to get.”

All available ships are chartered, but the supply chain is far from smooth. Around half of the fleet is used as floating storage, pushing back delivery times and charging more to end customers as gas prices continue to rise, according to brokers and shipowners.

“Certain gas traders are keeping the cargoes because there is no fixed price on them,” said

Jerry Kalogiratos,

chief executive of Athens-based

Capital Product Partners.

CPLP 0.34%

“If gas prices go up, the delivered LNG can be worth millions more and can end up with a different customer that will pay the higher price.”

The storage and transport of natural gas requires it being cooled to a liquid at roughly minus 260 degrees Fahrenheit. The global fleet is now roughly 650 ships, with the order book over the next three years at 285 vessels, according to maritime-data provider VesselsValue.

Capital Product Partners operates six gas carriers and has a further eight on order. The ones in the water are chartered to natural-gas exporters such as

Cheniere Energy Inc.

LNG -2.12%

and marketers such as

BP

PLC and French utility

Engie SA

. Capital Product’s shipments include picking up LNG at Sabine Pass in Port Arthur, Texas, for transport to clients in Spain and the Netherlands.

Cheniere, the largest U.S. LNG exporter, is adding a third loading dock at the Sabine Pass facility, which will allow more gas carriers to pick up cargoes.

The U.S., Qatar and Australia are the world’s largest exporters of LNG. About one-third of all LNG is sold on the spot market, with the delivered price of natural gas in Europe and Asia roughly six times higher on average than the U.S. production price, according to LNG traders.

London-based ship brokerage Clarksons said this month that as winter approaches freight rates could climb to $1 million a day. But brokers say the market should start to normalize by the second quarter of next year as temperatures climb and previously ordered ships begin to hit the water.

Warmer temperatures might not fully crimp demand, however. Energy companies including Spain’s

Repsol SA

and India’s state-owned gas producer,

Gail

(India) Ltd., are expecting the delivery of new LNG-hauling ships over the next few years.

Roughly 150 million metric tons of capacity to convert gas into LNG will be added over the next three years, with the U.S. producing two-thirds of the total, according to gas producers and traders. About 10% of all natural-gas production is being converted into LNG, versus 6% in 2007, according to U.S. exporters and natural-gas producers.

“With this kind of growth, LNG looks like it’s going to be the big winner of the energy transition,” Mr. Nokta said. “If oil gets a back seat, LNG will be the one taking a step forward.”

—Benoît Morenne contributed to this article.

Write to Costas Paris at [email protected]

In 2021, rates were in a range from $30,000 to $300,000. A record has been established several times since Russia’s invasion of Ukraine and disruptions to fuel-supply lines.

Freight rates are set depending on the type of ship, the distance sailed and the route. They are usually fixed weekly.

The record rates for LNG sailings contrast with plunging ocean rates for container boxships amid slowing global economic conditions and lower demand from retailers and factories to move cargo.

Brokers and shipowners say nearly all gas carriers in the global fleet are in operation to move LNG to customers, a majority of whom are in Asia. Meanwhile, U.S. natural-gas exporters are adding capacity for cargoes to Europe as the continent works to cut its dependence on Russian supplies.

LNG-laden ships are facing waits as long as four days to unload cargoes at some Western European ports along the Mediterranean Sea. The delays are the result of delivery volumes surging in recent months and few ports being equipped with terminals that can convert the LNG back to its gas state, according to shipowners.

“Every natural-gas buyer who is serious has taken LNG carriers into their portfolio,” said

Omar Nokta,

head of shipping research at New York-based financial adviser Jefferies. “There is very limited capacity out there and it’s super expensive to get.”

All available ships are chartered, but the supply chain is far from smooth. Around half of the fleet is used as floating storage, pushing back delivery times and charging more to end customers as gas prices continue to rise, according to brokers and shipowners.

“Certain gas traders are keeping the cargoes because there is no fixed price on them,” said

Jerry Kalogiratos,

chief executive of Athens-based

Capital Product Partners.

CPLP 0.34%

“If gas prices go up, the delivered LNG can be worth millions more and can end up with a different customer that will pay the higher price.”

The storage and transport of natural gas requires it being cooled to a liquid at roughly minus 260 degrees Fahrenheit. The global fleet is now roughly 650 ships, with the order book over the next three years at 285 vessels, according to maritime-data provider VesselsValue.

Capital Product Partners operates six gas carriers and has a further eight on order. The ones in the water are chartered to natural-gas exporters such as

Cheniere Energy Inc.

LNG -2.12%

and marketers such as

BP

PLC and French utility

Engie SA

. Capital Product’s shipments include picking up LNG at Sabine Pass in Port Arthur, Texas, for transport to clients in Spain and the Netherlands.

Cheniere, the largest U.S. LNG exporter, is adding a third loading dock at the Sabine Pass facility, which will allow more gas carriers to pick up cargoes.

The U.S., Qatar and Australia are the world’s largest exporters of LNG. About one-third of all LNG is sold on the spot market, with the delivered price of natural gas in Europe and Asia roughly six times higher on average than the U.S. production price, according to LNG traders.

London-based ship brokerage Clarksons said this month that as winter approaches freight rates could climb to $1 million a day. But brokers say the market should start to normalize by the second quarter of next year as temperatures climb and previously ordered ships begin to hit the water.

Warmer temperatures might not fully crimp demand, however. Energy companies including Spain’s

Repsol SA

and India’s state-owned gas producer,

Gail

(India) Ltd., are expecting the delivery of new LNG-hauling ships over the next few years.

Roughly 150 million metric tons of capacity to convert gas into LNG will be added over the next three years, with the U.S. producing two-thirds of the total, according to gas producers and traders. About 10% of all natural-gas production is being converted into LNG, versus 6% in 2007, according to U.S. exporters and natural-gas producers.

“With this kind of growth, LNG looks like it’s going to be the big winner of the energy transition,” Mr. Nokta said. “If oil gets a back seat, LNG will be the one taking a step forward.”

—Benoît Morenne contributed to this article.

Write to Costas Paris at [email protected]