The cost of shipping liquefied natural gas breached a new record Tuesday as buyers across the world compete for volumes in a tightening market ahead of a winter shortfall brought on by Russia’s invasion of Ukraine.
Rates to charter an LNG vessel in the Atlantic rose to $374,000 per day, more than quadruple the freight rate on the same day in 2021, according to Spark Commodities. By contrast, the rate on Oct. 11 of last year was near $91,000 per day, and a year before, it was $65,000 per day.
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Extreme competition in the LNG market has driven prices for the commodity itself and the cost of transport to new levels this year.
Ballooning European demand is largely responsible. It has increasingly turned to the fuel as Russia, which has been its largest external gas supplier for years, dramatically reduced its pipeline gas exports to the European Union after the bloc imposed multiple rounds of sanctions in response to the invasion of Ukraine.
The reduction in imports from Russia has put Europe into emergency mode, and the EU has introduced mandatory energy-saving measures to conserve gas. It has also returned to more coal, a fuel it quickly wants to phase out, in a bid to save gas.
Gas is used for power generation and industrial processes, but it’s also used widely for home heating in Europe, making the conservation and acquisition of more gas an imperative to get through winter.
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The record freight rate has implications for the northeastern United States, too, which imports a portion of its winter gas supplies as LNG and is staring down its own price and supply nightmare this winter.
A century-old U.S. law, the Jones Act, prohibits intra-U.S. shipping on foreign-built, foreign-operated vessels unless the government waives the regulation. The U.S. has no Jones Act-compliant LNG vessels, limiting supply options, and New England buyers have to compete against Europe and others to acquire LNG from abroad, subjecting them to higher rates.
