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LNG tankers stranded off Singapore, Malaysia as demand outlook weakens
[SINGAPORE] A fleet of half a dozen tankers carrying unsold liquefied natural gas (LNG) has been floating in Singapore and Malaysian waters for up to two weeks as winter demand in Asia looks weaker than initially expected, traders said on Thursday.
The ships together carry around a million cubic metres of LNG, worth more than US$200 million at current spot market prices.
One of them, Adam LNG, is carrying 164,000 cubic metres of LNG that originated from the Arctic Yamal project in Russia, with Refinitiv Eikon ship tracking data showing the cargo to be open "for orders".
The LNG cargoes were purchased ahead of the northern hemisphere winter season, said several traders with knowledge of the matter, declining to be named as they were not allowed to speak publicly about commercial operations.
"Everyone floated cargoes last month, with a steep contango over October to November, and they now can't find homes for these floating cargoes," an LNG broker said.
Contango means prices for future delivery are higher than those for immediate dispatch, making it attractive for traders to hold on to cargoes for later sale.
Many traders were also hoping for a repeat of last winter, when LNG spiked to 2014 highs of US$11.50 per million British thermal units (mmBtu) as the top three importers, Japan, China and South Korea, scrambled to meet demand amid China's gasification programme, unusually cold weather and widespread nuclear power outages.
"Some merchants were hoping for another price bull-run this year, and hoped importers would stock up more to prevent being caught short," said one trader in Singapore.
"That's not happened - at least yet - as weather outlooks suggest a relatively mild winter, and because a lot of nuclear reactors, especially in Japan, have returned to service," he said.
Japan is expected to experience warmer-than-average weather between November and January, the country's official forecaster said this week, implying low demand for heating.
The Japan Meteorological Agency as well as Australia's Bureau of Meteorology both said this month there was a 70 per cent chance an El Nino weather pattern could emerge this year, causing unusually warm winters in the northern hemisphere.
Japan is the world's top LNG importer, but its purchases could also fall as it restarts nuclear power plants that were shut down after the reactor meltdown at Fukushima in 2011.
Nine reactors have received regulatory approval to restart, with seven of them already in operation, more than most analysts had expected.
Storing unsold LNG tankers is costly, as these are among the most expensive merchant vessels to hire and operate.
There is still a US$1 contango for January prices over December, which is around US$10.40 per mmBtu, a Singapore-based trader said.
But with LNG freight rates at six-year highs of more than US$140,000 per day, up from US$95,000 a day in September, storing LNG on tankers would eat up any profit from the spread.