The ongoing truce and ceasefire agreement between Israel and Hamas has sparked speculation over the resumption of ships’ passage through the Suez Canal. Although the truce seems to bring some respite to regional tensions, the complete functioning of the Suez Canal will be a mixed bag for LNG shipping.While the resumption of transit via the Suez Canal could accentuate the role of Qatari LNG exports to Europe, cargoes from the US to Asia will likely continue transiting the COGH, conforming with shipping economics. Meanwhile, the risk associated with the Red Sea transit remains high at the moment, with insurers keeping a cautious outlook for risk premiums.

Impact of resumption of transits via Suez Canal

Drewry discusses the resumption of vessel transits through the Suez Canal after the announcement of the Israel-Hamas ceasefire. We expect no immediate return of LNGCs to the Red Sea in the near term, and carriers are likely to continue transiting the COGH as risks of Red Sea transits remain high, keeping shipowners wary of returning to the Suez Canal. US shipments to Asia will continue taking COGH in order to support shipping economics amid low freight rates and ample vessel supply. Meanwhile, Qatari LNG exports to Europe will likely switch over quickly to the Suez Canal, which could facilitate a steady return of more LNGCs depending on the favourable course of events in the coming months.

More Qatari LNG to Europe likely

The resumption of transits via the Suez Canal will benefit Qatari exports to Europe, with the former’s share likely to exceed its exports to Europe in previous year. This will be led by the expected recovery in European LNG demand this year with the end of Russia-Ukraine gas transit deal, the conclusion of 2024-25 winter with lower gas stocks and looming sanctions on Russian LNG, compelling European buyers to seek more LNG from alternative sources.

Normalcy in the Red Sea will boost LNGC transits through the Suez Canal, majorly with Qatar’s ships moving to Europe, where the latter’s demand is expected to rise.

The share of Qatari LNG shipments to Europe fell in 2023 after the start of the Red Sea crisis in October 2023, minimising the flexibility of Qatari exports to European markets. The share was further squeezed in 2024, with subdued LNG demand in Europe and the growing prominence of US and Russia becoming the prominent as LNG suppliers for Europe, given their flexibility and proximity.

The trend could reverse in 2025 as the share of Qatari exports to Europe is likely to revive with the resumption of transits via the canal.

Meanwhile, Algeria could also regain its lost share in the Asian market if the Red Sea situation normalises. Algeria predominantly exports to Europe, but the country’s exports to Asia, which were hampered by the Red Sea attacks, can also rise, especially if the US-China tariff war restarts. The share of Algerian LNG exports towards Asia rose to 9% in 2023 but declined to just 5% in 2024 due to the persisting Red Sea tensions.

US shipments to Asia to continue transiting via COGH

We expect no significant change in US-Asia vessel movement as low freight rates and high vessel availability will allow exporters to avoid the canal costs and continue using the COGH. This situation is similar to that in the Panama Canal, where, despite the ease in regulations, LNGCs continued to transit via COGH, avoiding the high canal costs and competition from other sectors.

LNGCs transiting between the US and Asia will continue to prefer COGH over Suez or Panama as shipping economics will play a pivotal role in determining vessel movement. Low freight rate projections for 2025 due to plentiful vessel availability and lower LNG prices will keep shipowners on edge, preventing them from paying high canal and shipping costs.

The US-Asia trade has been improving over the last couple of years, and we anticipate further improvement in 2025 despite increasing competition from Europe. The trade will be supported by new supply in the US with the start of key LNG projects such as Plaquemines LNG (13.5 mtpa) and Corpus Christi Phase 3 (10 mtpa). The robust US-Asia trade, complemented with COGH as the preferred passage, will positively affect LNG shipping demand. However, the reversal (via Suez) will be detrimental to rates as long voyages will be cut short, curtailing the potential benefits from higher US-Asia trade and thereby pressuring rates further.

Normalcy in Red Sea to potentially deter recovery in shipping rates

Spot rates for a TFDE carrier are currently at record lows of $16,500pd, while for a steam turbine carrier, they are at $3,000pd. Excess fleet supply (with high deliveries expected in 2025) and new capacity addition pooled towards 2H25 would continue to depress rates.

While the resumption of transits via the Suez Canal with normalcy in the Red Sea will benefit the Qatar-Europe LNG trade, it will also deter the tonne-mile demand in the sector with vessels using the shorter route. In this scenario, effective fleet supply will increase, adding more pressure on rates.

However, LNG shipments from the US to Asia will likely transit via COGH with limited vessels moving through the Suez Canal as vessel availability is high and so are the canal costs at Panama and Suez.

Although an immediate return to the Suez Canal seems improbable, a steady return of Qatari-linked vessels is likely. Moreover, the sudden shift from COGH to Suez will be detrimental to LNG shipping as longer voyages have prevented freight rates from falling further in 2024. Thus, LNG shipping will need COGH as the preferred passage, at least until 2025-26 for vessels moving from the US to Asia to increase the employability of the expanded fleet. We expect vessel availability to remain high in 2025-26 with longer voyages providing some respite to freight rates.

Source: Drewry