LNG shipping is set to grow into a liquid market in the future similar to the oil shipping sector, but the evolution could take time, senior industry officials said Monday.
The cost of LNG shipping became a big issue in the final quarter of 2018 as rising prices in the Atlantic Basin made arbitrage opportunities between Europe and Asia uneconomic.
Prices rose to as high as $190,000/d in Q4 2018 given limited spot vessel availability from just $40,000/d in Q4 2017.
Patrick Dugas, head of LNG trading at French major Total, said Monday that the spike was down to more than 30 vessels being used as floating LNG storage in northeast Asia, and that the price hike was an “event” and not a “structural” issue.
There are currently around 520 LNG vessels operational globally.
“I’m not sure the market was actually short of capacity,” Dugas said at the European Gas Conference in Vienna.
But, Dugas said, it was clear the LNG shipping market would continue to evolve.
“In a few years there will be a shipping futures contract,” he said.
Pointing to the well-evolved oil shipping markets, Dugas said there was no reason why such a futures market would not be developed also in LNG.
“It would become part of a trading tool, for traders to hedge their positions,” he said. ‘NOT A MARKET’
The head of gas analysis at the International Energy Agency, Jean-Baptiste Dubreuil, speaking at the same event, said at present that LNG shipping was “not a market.”
“It is a small fleet and the market is not liquid,” Dubreuil said. “There is no futures market so will take some time before it becomes a liquid market.”
Dubreuil added that LNG vessels typically are larger than some of the oil fleet, with a higher price tag, making the market less liquid.
Total’s Dugas, though, said it would “naturally” evolve into a more liquid, traded market.
Total — which as an active LNG market player has upstream, midstream and downstream access — is in a good position to optimize its portfolio using shipping.
“If you have flexible volumes plus a shipping fleet you have a competitive advantage,” Dugas said.