Suez Canal Blockage: Impact on the LNG shipping market
The first half of 2021 witnessed an impressive volatility of the LN shipping market. After being subdued across most of 2020, LN spot charter rates for steam turbine carriers skyrocketed to the record highs of US 124,000 per day in January 2021, driven by two key factors. First, amid colder-thanusual winter season LN demand soared in many gas-consuming regions, which resulted in a surging demand for LN carriers. Second, the congestions at the Panama Canal lowered availability of LN carriers on the spot market. However, because of a slowdown in LN demand, charter rates plunged to the annual low of 12,000 per day in early March 2021.
The shipping industry, including its LN segment, faced a new black swan on 23 March 2021, when the containership Ever iven ran aground in the Suez Canal. That halted vessel traffic in the waterway, which averaged up to 50 transits per day, and brought a high level of uncertainty to the global markets.
The Suez Canal plays a crucial role in the global LN transportation, connecting the Atlantic basin markets with Middle Eastern and Asia Pacific markets. In total, 686 LN carriers, including laden and ballast ones, transited the Suez Canal in 2020. This number included 388 laden LN carriers passing through the waterway, representing 7 of global LN shipments. A total of 276 laden LN carriers passed through the Suez Canal in the east-to-west direction, with almost all of them delivering LN from Qatar to Europe, mainly to Italy and U . At the same time, 112 laden LN carriers sailed via the waterway from west-to-east, with most of them delivering Russian and US LN cargoes to Asia Pacific. The Suez Canal is actively used for transportation of Russian cargoes to Asia (with prior transshipment in Europe) from February to May, when the Northern Sea Route is closed due to high ice thickness, and US cargoes to Asia because of congestions at the Panama Canal. Laden LN carriers transported over 32 million tonnes per annum (mtpa) through the waterway, which represented 3 of the overall tonnage transiting the Suez Canal, while the share of crude and oil products reached 23 .
The blockage resulted in 370 vessels waiting to transit the Suez Canal. Among them, there were 16 LN carriers.
Since there was no clear understanding of how long it would take to eliminate the disruption, some LN carriers took alternative routes for cargo transportation, mainly travelling around the Cape of ood Hope in Africa. That resulted in higher shipping costs because of longer shipping times with LN delivery from Middle East to Europe rising to 27 days, or 10 additional days compared to delivery through the Suez Canal. In the meantime, other LN carriers preferred to wait for a solution to the transit crisis.
The Suez Canal blockage lasted for a week, with the containership re oated and vessel traffic restarting on 29 March 2021. In this context, a large-scale disruption to the LN shipping market was prevented.
While the transportation of crude and oil products was affected to a greater extent, with the market witnessing a significant rise in freight rates, the blockage had a limited impact on the global gas market. It resulted in the delayed deliveries of various LN cargoes. However, the delays did not have a strong upward pressure on LN spot charter rates. They increased only by
3,000 to 20,000 per day over the period of the blockage, remaining much lower than a year earlier (Figure 1). First, the timing of the blockage was not critical for the LN market, which was entering the shoulder season with lower LN demand. Second, there was no shortage of shipping capacity on the market, with various LN carriers commissioned in early 2021. Besides, LN carriers stuck in the Canal were likely to be chartered on medium- and long-term basis, with the blockage not affecting the availability of LN carriers on the spot market. In this context, the blockage impacted mainly LN loading and discharging schedules in various ports, however the LN shippers could catch up on these later.
That said, it is worth noting that if the blockage had been longer or had happened in the winter season, its impact on gas markets could have been greater, with tightening LN supply, lifting spot charter rates, and rising spot LN prices.
In the second half of April 2021, LN spot charter rates reached 50,000 per day and stayed at this high level throughout May, which is not typical for that season. However, this had nothing to do with the Suez Canal blockage.
The Suez Canal disruption demonstrated that the global trade, including its LN segment, highly depends on this crucial trade route, while alternative routes are inconvenient and more costly. As such, any disruption at the waterway may have severe consequences for all stakeholders, including the ECF Member Countries.
It is highly unlikely that the LN industry will opt for alternative trade routes because of this accident, however the relevant risks should be taken into account and managed. First, supply and charter contracts may envisage a fair split of additional transportation costs, driven by delays in LN delivery due to disruptions at the Suez Canal between LN exporters, importers, and shipping companies. Second, charter contracts may include alternative trade routes, such as the Cape of ood Hope, in case of transportation disruption at the Suez Canal. Third, LN importing countries may prioritise the development of gas storage, including underground and LN segments, to avoid supply disruption in case of such accidents.