Shipping costs for liquefied natural gas have reached their highest levels in about eight months as more vessels head to Asia and tensions rise in the Middle East.
Tight vessel availability has pushed up freight rates in both the Atlantic and Pacific markets.
The Atlantic freight rate for LNG tankers with two-stroke engines and a 174,000 cubic meter capacity was assessed at $51,750 per day on Monday, the highest since October 3, according to Spark Commodities. The Pacific rate for the same ship type rose to $36,750 per day, the highest since October 25.
The increase in rates is driven by a drop in available vessels. More U.S. cargoes are now being sent to Asia due to similar profit margins for deliveries to both Europe and Asia. As a result, ships are taking the longer route via the Cape of Good Hope, which increases travel time and lowers the number of ships available for new charters.
A recent tender from Egypt to buy up to 160 LNG cargoes through 2026 has also added to demand for shipping. Earlier in the year, shipping rates had dropped to five-year lows as U.S. cargoes remained in the Atlantic, reducing average travel distances and increasing tanker availability.
Rising tensions between Israel and Iran have added further pressure to the LNG shipping market. Both countries have exchanged missile strikes, raising concerns that Iran may attempt to close the Strait of Hormuz in retaliation.
The security concerns have led shipowners to delay charters and pushed insurance costs higher. War risk premiums for vessels passing through the Strait of Hormuz have risen by up to five times, according to trade sources.
About 20% of global oil and gas flows through the strait, which lies between Iran and Oman. Qatar, one of the top LNG exporters, sends nearly all of its shipments through this route.
