Liquefied natural gas traders are following the latest trend in the oil market by storing huge amounts of the commodity on tankers, hoping prices will rise before the ship docks.
But while crude can sit for months or even years in a tank, super-chilled LNG tends to evaporate even in the specialized vessels that handle it. That limits the amount of time “floating storage” is feasible.
“Keeping gas frozen is extremely expensive because of the energy cost to maintain the ultra low minus-265-degree Fahrenheit temperature,” said Francisco Blanch, head of global commodities and derivative research for Bank of America Corp. in New York.
The number of vessels used for floating storage peaked at 17 late last month, but has now eased to 13 after some unloaded their cargoes in India, according to data intelligence company Kpler. Three vessels have been idle for more than 10 days, Kyriakos Mezopoulos, director for LNG at Affinity, said in a note.
More ships acting like storage tanks might be a sign the LNG industry is poised to cut production. They’re reacting to a crash in prices as demand slowed, the result of two warm winters in a row and the coronavirus, which has shut huge parts of the global economy.
U.S. LNG producer Cheniere Energy Inc. is already sourcing cargoes in Europe, with some traders and analysts speculating that this could be ahead of temporary production cuts.