Gas prices could be driven higher as European and Asian suppliers race to charter LNG tankers

• European and Asian natural gas suppliers are racing to charter LNG tankers, which could push gas prices higher.
• It spells trouble for Europe in particular, which faces a potential shutoff from Russian gas.

With a global energy crisis looming, European and Asian natural gas suppliers are racing to charter LNG tankers — and that competition could potentially drive up gas prices, according to a new note from S&P Global.

That particularly poses a problem for Europe, which has already shelled out billions to secure gas supplies since Russia slashed gas flows to the continent this summer. Recently, Russia announced it would halt flows on the Nord Stream 1 pipeline indefinitely, which caused Dutch TTF natural gas prices — the European benchmark — to soar 28% to 268 euros, or $266 per megawatt hour.

Both Europe and Asia have been building up their stockpiles of natural gas for the winter, but experts say that some countries have never subsisted completely off reserves before without additional flows. That means LNG tankers, which allow large-scale transport of liquefied natural gas overseas, are still part of the supply scramble, analysts from S&P Global said in a note on Wednesday.

"Short-term charter vessels are still available scantily but long-term [LNG carriers are] not. There's not enough supply," one industry source told the research firm.

That's because it takes years to build new tankers, and prices are expected to hike as new ships are mid-construction. Around the world, there are around 286 LNG carriers that are on order to 2028, and only 165 of those ships will come out by 2025.

Another industry source told the S&P that chartering rates for LNG tankers "will fly when the winter season arrives," and one tanker broker speculated that charter rates for tri-fuel Pacific tankers on round voyages could reach $400,000 per day during the winter.

That's a 20% premium from what it cost to ship natural gas last December at $320,000 per day, and it's over 13 times what tankers were chartered for at the time of Russia's invasion of Ukraine, at $30,000 a day in February.

It could have a major impact on gas prices, according to a report from the Wall Street Journal, as chartering rates have contributed to the record prices seen in Europe and Asia so far.