Europe Facing Record High Shipping Rates for Liquid Natural Gas, Running Out of Storage Capacity

A tanker heads out to the channel in Rochester, England, ahead of the first gas shipment of liquefied natural gas from Australia to Europe in more than half a decade, on Aug 22, 2022. (Dan Kitwood/Getty Images)

A lack of ships is the latest challenge for buyers of liquefied natural gas (LNG) this winter, as Europe prepares for a season without Russian energy supplies and shipping rates are hitting records highs, according to a Bloomberg report.

European countries are actually paying to keep LNG-loaded ships nearby as onshore storage facilities are maxed out. The scramble to charter fleets of ships to carry LNG has sparked fears that many buyers will not have enough ships capable of transporting the fuel from exporters.

Demand for LNG in Europe surged by 65 percent for the first eight months of 2022 compared to the same period in 2021, the International Energy Agency (IEA) said in its third quarter Gas Market Report released on Oct. 3.

LNG shipments are now being sought from suppliers like the United States, Nigeria, and Qatar.

Europe Competes for LNG Shipments

In June, the EU imported more gas from the United States than from Russia for the first time in its history, after Moscow reduced its exports to Europe following sanctions, according to OilPrice.com.

As much as 70 percent of all U.S. natural gas exports were sent to Europe in September, up from 63 percent in August, according to Reuters.

Meanwhile, nations in Northeast Asia and South America are also beginning to charter LNG-bearing ships in preparation for the winter, adding additional pressure.

States in New England, which are dependent on LNG imports for the winter to supplement energy supplies, are being forced to compete against European buyers, Seeking Alpha reported.

The cost to charter an LNG-carrying ship in the Atlantic Ocean rose to $397,500 per day on Oct. 11, Bloomberg reported. The new record for Atlantic LNG freight rates topped the previous record of $374,000 per day set on Oct. 3.

This is an increase of over $306,500 per day, or 337 percent, compared to the 2021 shipping rate of $91,000 per day, and a 500 percent increase since the beginning of 2022, according to Spark Commodities.

The LNG shipping price assessor said this broke last year’s all-time record high from the Pacific Ocean during the height of the supply chain crisis.

Rates are expected to rise as traders and utilities proceed to hoard more natural gas, which is presenting a hurdle to buyers this winter.

A Global Shipping Shortage

The race to buy LNG—and charter vessels to carry it—could create the next big shortage in the energy market, say analysts and traders.

LNG exporters in Asia are now selling gas directly from their ports rather than offering to ship the fuel, due to the shipping shortage.

Buyers who lack LNG transport are being forced to pay extremely high rates to ferry the fuel, or in certain cases are failing to find any ships at all.

There are few vessels left to charter through the rest of the year, and those that are still available are charging astronomical rates, according to LNG traders.

“Once you have full utilization, there’s nothing that prevents rates to go to any level, other than if freight becomes so much of the total that it kills it," said Hafnia Tankers CEO Mikael Skov at the Capital Link New York Maritime Forum, according to American Shipper. “There’s really no cap until the freight becomes really, really high.”

Traders report that energy majors, which typically lease their vessels to other buyers, are reluctant to do so this quarter, as they fear being caught without ships as winter gets closer.

The demand for ships globally will be driving freight rates higher, and traders say rates still have more room to climb.

Reuters contributed to this report.