Low LNG Shipping Rates and the Impact on U.S. LNG Offtake Margins

In the second half of 2024, a surplus of available liquefied natural gas (LNG) ships led to a steep fall in LNG charter rates. In this article, we look at the causes of the low charter rates, and consider the impact of these rates on U.S. LNG offtake margins to Europe and Asia.

LNG Plant Delays and the Impact on Low Shipping Rates in 2025

The construction of new LNG facilities has faced several significant delays over the past five years. In 2023, the U.S. Energy Information Administration (EIA) published a projection of LNG production capacity growth, anticipating the completion of six LNG facilities in the U.S. by 2025, with a combined capacity of approximately 5.7 billion cubic feet per day (Bcfd), or nearly 44 million tons per annum (MTPA) of LNG.

Table 1 below compares the EIA’s 2023 expectations with actual and expected startup dates as of January 2025. Several of these LNG facilities have had significant project delays compared to the 2023 projections.

As of January 2025, an additional 15 MTPA of capacity that was expected to be operational by the end of 2025 has been delayed until 2026-2027. However, 22 MTPA of capacity has been completed and is ramping up to full operating capacity. Notably, Corpus Christi Stage 3, which includes seven midscale plants, is expected to reach full capacity by the end of 2026.

LNG shipping rates fell sharply in 2024

In contrast to these delays, the delivery of new LNG vessels has remained on schedule. The typical construction time for a new LNG vessel is two to three years, so the vessels ordered in 2022—before the LNG project delays became apparent—are now entering service. By late 2024, as additional vessels became available, daily charter rates saw a significant decline.

As shown in Figure 1 above, spot charter rates in the Atlantic Basin fell from a midyear peak of $65,000 per day to $10,000 per day in November 2024 and even dropped to zero in late January 2025.

It is important to note that these rates do not represent "free" shipping, as they exclude fuel and crew costs. In addition, these are spot rates and represent only a minority of LNG vessel charters.

The unprecedented drop in spot charter rates has reduced the overall cost of transporting U.S. LNG to Europe and Asia. We can compare the attractiveness of European and Asian markets as destinations for U.S. LNG by comparing estimated U.S. LNG offtake margins.

US LNG Offtake Margins

The LNG offtake margins can be calculated by comparing benchmark gas prices for the destination market to the U.S. market, typically referenced to Henry Hub. For example, in January 2025, the Dutch TTF - a key European benchmark price - averaged around $14.70 per million British thermal units (MMBtu), while the Henry Hub, the most commonly cited U.S. benchmark, averaged about $4.13/MMBtu. The price differential of approximately $10.50/MMBtu between Europe and the U.S. resulted in an LNG margin of approximately $7/MMBtu after factoring in shipping and other costs.

Throughout 2024, U.S. LNG exporters found Asia to be a more profitable destination for non-contracted or spot LNG cargoes compared to Europe. It may appear on the surface that this situation would continue, given that longer voyages to Asia benefit more from low shipping rates than shorter European routes.

However, at 8 a.m. on January 1, 2025, the flow of Russian pipeline gas that transited Ukraine to Europe was cut off. Before the Russia-Ukraine conflict, about 42 bcm or 58 Bcfd of Russian gas flowed to Europe via Ukraine. In 2024, this flow had declined, although nearly 15 bcm or 21 Bcfd of gas still reached Europe via Ukraine. With the complete cessation of these deliveries, European gas prices rose relative to Asian prices, drawing LNG supplies away from Asia to compensate for the shortfall.

The combined effect of low shipping costs and the loss of Russian gas deliveries to Europe at the end of 2024 has effectively made European and Asian markets equally attractive for U.S. LNG producers. As shown in Figure 2 above, the offtake margins for European and Asian markets have converged over the past six months, with European margins now marginally higher than Asian margins in January 2025.

Looking Ahead: 2025 and Beyond

Looking to 2025 and beyond, as Plaquemines and Corpus Christi ramp up to full production capacity and as the first of Qatar's North Field East expansion projects come online, the LNG shipping market is expected to tighten. However, the market could remain oversupplied for several years until the completion of Golden Pass LNG and additional expansions from Qatar, both currently expected in 2026-2027, eventually rebalancing the LNG shipping market.

In addition, we also expect that the European offtake margin will remain equal to or higher than the Asian offtake margin in order to attract sufficient LNG to replace the shortfall in Russian pipeline gas imports.