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Gas tankers looking for a better deal

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LNG Industry,

Bloomberg are reporting that when the tanker Provalys left Louisiana for Chile last month with a full load of US LNG, it sailed around South America instead of taking a shortcut through the expanded Panama Canal. Not only may the route be cheaper without canal transit fees, but advances in technology mean less of the fuel would end up lost at sea during the journey.

A new generation of ships is reducing LNG evaporates losses, giving traders more flexibility to choose the scenic route in search of the highest prices.

Once a regional commodity, natural gas is becoming global. As new LNG export plants pop up from the US to Australia, a glut has emerged and ships are becoming more than just transporters. They allow fuel to be stored until demand rises or a scheduled delivery window arrives. Oil markets have operated that way for decades, but it’s new for natural gas, which was historically dominated by long-term contracts to specific destinations.

New vessels allow for longer voyages because their rates of boil-off, or LNG evaporation, are about 0.1%, compared with 0.15% a decade ago. Ships built from this year on will bring the rate down even more.

The average distance for cargoes from the US, which have traveled as far as Thailand, has reached 7500 nautical miles, about double the global long-term average. The average voyage speed from Louisiana’s Sabine Pass terminal has been 14.3 knots, compared with an average of 16 to 17 knots for other tankers over the past few years.

Longer routes allow US exporters to nab bigger profits by selling to Asia and the Middle East. Since modern ships have less boil-off, most vessels travel at economical speed.

The Provalys is due to arrive at Chile’s Mejillones terminal 25 August, making the journey via Cape Horn. An alternative route through the expanded Panama Canal would have seen it arrive about two weeks earlier and would have required paying tolls and securing a slot.

The ship was delivered in 2006 and was one of the most efficient of her kind at the time. Short-term LNG shipping rates have been pressured over the past years but may rise this winter.

Since the start of the year, four ships from Sabine Pass and nine vessels from Qatar, the biggest LNG producer, took longer routes to deliver their cargoes. Qatari vessels sometimes opt to go via the Cape of Good Hope instead of taking a quicker path through the Suez Canal, and the Symphonic Breeze with a cargo from Trinidad and Tobago, is taking a month-long trip around the cape to China.

The Provalys’s longer journey to Chile would increase shipping costs by about 10 cents per million British thermal units, or US$350 000, at current freight rates. But that may not matter to gas buyers like Engie and Royal Dutch Shell Plc, who often consider their long-term vessel charters a sunk cost. Thus, they are less concerned about making a speedy delivery and releasing the vessel from charter.

Because US LNG isn’t contractually bound for a specific destination, ships carrying the nation’s gas can be diverted en route to get a better deal. Still most cargoes are sold to a particular buyer before they’re loaded. 

Meandering journeys for LNG tankers will probably remain common as the gas market evolves.

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