The spot charter rate for a standard 174,000-cubic-meter (cbm) liquefied natural gas (LNG) carrier has seen a significant uptick in the fourth quarter, directly squeezing arbitrage margins for traders moving volumes from the United States to Europe.

As of early November, rates for trans-Atlantic routes have reached approximately $120,000 per day, up from an average of $85,000 per day in the previous quarter. This increase adds a substantial cost to the landed price of US-sourced LNG in European terminals.

Cost Breakdown

The profitability of the US-to-Europe LNG trade is primarily determined by the spread between the US Henry Hub natural gas price and the European Title Transfer Facility (TTF) price, minus the costs of liquefaction, shipping, and regasification.

A simplified cost flow chart is as follows:

Henry Hub Feed Gas → Liquefaction Plant → LNG Carrier (Shipping Cost) → European Regasification Terminal → TTF Market

With the current rise in shipping costs, the break-even TTF price required to make the trade profitable has increased by an estimated $0.75 per million British thermal units (MMBtu).

Market Factors

Several factors are contributing to the rate hike:

1. Increased Tonnage-Miles: Geopolitical tensions have led to longer shipping routes for some vessels, effectively reducing the available supply of carriers in the spot market.
2. Seasonal Demand: The onset of winter in the Northern Hemisphere traditionally boosts demand for LNG, leading to higher competition for available vessels.
3. Fleet Growth Lag: While new LNG carriers are on order, the delivery schedule has not kept pace with the rapid growth in global LNG production capacity.

Analysts project that charter rates will remain elevated through the first quarter of 2025, potentially capping the volume of opportunistic spot cargoes and favoring players with long-term charter agreements. This market dynamic underscores the critical role of logistics costs in the global energy trade.