Storage: "Small Shift in LNG Market May Bring Big Boost for Shipowners"

From Bloomberg via gCaptain:

With so much cheap liquefied natural gas around, traders are again looking at tankers to store the fuel in the hope of better prices.

A long-established practice in oil trading, the complexity and cost of keeping natural gas in liquid form on ships for extended periods meant it wasn’t widely used until last fall, in anticipation of a surge in Chinese demand and prices. Some of these bets backfired when a mild winter damped requirements for the fuel, forcing traders to discharge LNG and release the vessels, which caused a crash in spot charter rates.

While it’s a gamble as weather-driven demand is unpredictable, price signals indicate the option to store LNG in vessels later this year is again becoming attractive, not only in Asia, but also in Europe. The price premium for later contracts, or contango, is building up for both spot Asian LNG prices and the U.K. benchmark, leaving traders weighing how to profit should they choose to store gas at sea.

“We could see a lot of floating LNG storage from September and this could also tighten shipping rates before winter,” Nick Boyes, a senior gas and LNG analyst at Swiss utility and trader Axpo Group, said by email.

Given the price gap, and with an estimated cost of storing LNG of 60-75 U.S. cents a million British thermal units a month, “current freight rates allow for floating storage opportunities in September, October and November this year in both northeast Asia and Atlantic,” Boyes said.

JKM futures for December are about $2.30 per million Btu higher than September contracts, or a premium of $7.6 million for a 3.3 trillion Btu cargo. How much profit can actually be made is strongly dependent on the cost of renting a tanker and of keeping the fuel in liquid form at minus 162 degrees Celsius (minus 260 degrees Fahrenheit)....MORE