Cheaper and stable LNG pricing motivates bunker demand

LNG price premiums over VLSFO have been erased in major global ports and triggered more oil-to-gas switching in recent months.

PHOTO: A graphic representation of an LNG Tanker. Getty Images

LNG prices surged last year to over $2,500/mt in Rotterdam and over $2,000/mt in Singapore, after Russia’s invasion of Ukraine led to Western sanctions that disrupted global LNG flows. Since then, however, alternative import sources, restocking and lower demand have pulled LNG prices sharply lower and narrowed their premiums over VLSFO.

Rotterdam’s LNG bunker price had more than halved to just above $1,000/mt by January this year, but remained unattractive as it still commanded a premium of around $500/mt over the port’s VLSFO price, according to Argus Media data on DNV’s Alternative Fuels Insight platform. By June, the LNG price had come off sharply and was trading at parity with VLSFO at around $500/mt. It has since dipped below VLSFO.

Singapore’s LNG bunker price dropped even faster and traded below $500/mt by May. It has been trading at a discount to the region’s VLSFO price since March.

LNG still forms a small part of the bunkering market. Pricing can vary greatly from supplier to supplier and depend on the unique conditions of each firm enquiry. Prices from S&P Global Platts show similar trends to Argus Media’s data, with Singapore and Rotterdam’s LNG bunker prices both trading at discounts to VLSFO.

A sustained cooldown in prices could encourage more LNG vessel orders, while dual-fuel vessels currently capable of burning LNG could decide to opt for more of it than VLSFO or other conventional fuel oils, a trader says.

Shipowner Himalaya Shipping recently found it cost-effective for two of its vessels to bunker LNG in Singapore for the first time in a while due to the decline in prices. Singapore's LNG bunker price was $472/mt on 31 July, compared to $610/mt for VLSFO, the company said.

"The high LNG prices seen in the wake of the Russia-Ukraine conflict seems to be normalizing, and we believe, over time, LNG prices will trade at a discount to oil," the chief executive of Himalaya Shipping Herman Billung said.

Rotterdam sold 266,000 cbm of LNG bunker fuel in the first half of this year, a 24% increase from the first half of 2022. Second-quarter LNG bunker sales more than doubled on the quarter and hit their highest since the third quarter of 2021.

LNG bunker supplier Titan says more stable prices for natural gas than for conventional fuels has helped the company secure more market share in recent weeks, despite other factors such as a rebound in prices due to a seasonal cooling demand in swelteringly hot parts of Europe.

By Debarati Bhattacharjee

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