LNG to Asia May Get More Costly as Piracy Boosts Freight Rates

By Dinakar Sethuraman

Nov. 25 (Bloomberg) -- Asian utilities including Korea Gas Corp. and Tokyo Electric Power Co., the world's two biggest liquefied natural gas buyers, may have to pay more for cargoes from the Atlantic basin as pirate attacks increase shipping costs.

Seri Angkasa, a LNG tanker carrying a spot cargo from North Africa to Incheon terminal in South Korea, is avoiding the Suez Canal and instead heading into the Atlantic, according to AIS Live on Bloomberg and Pan EurAsian Enterprises. The detour may almost double shipping costs to $43 a metric ton from $23.

Shipments from Middle East producers, which account for more than 25 percent of world LNG output, to the West must pass through the Suez as also spot supplies from North Africa to Asia. Somalian pirates seized a ship loaded with 2 million barrels of crude on Nov. 15, their biggest-ever prize, and demanded a $25 million ransom for the Saudi Arabian supertanker.

``It's a latent threat for LNG shipping,'' Divay Goel, director of Drewry Maritime Services Ltd. in Singapore, said by telephone. ``The pirates have started targeting larger vessels.''

Longer voyages around South Africa's Cape of Good Hope, avoiding the Suez Canal and the Gulf of Aden above Somalia, would add 6,000 miles of transit. As much as 70 percent of global LNG trade makes use of the Canal, data by Drewry Maritime show.

``Seri Angkasa is evidence of LNG ships avoiding the pirate risk by taking the long way around,'' Pan EurAsian said in an e- mail. ``The added delivery cost may add about 3 percent,'' to the total shipping cost to South Korea.

Higher freight costs come even as Asia may have halved imports of spot cargoes for winter consumption, ship-tracking data show. Mild weather and the global financial crisis are cutting LNG demand from Japan, India, South Korea and Taiwan. Korea Gas is losing money at these prices, Pan EurAsian said.

Somalian Hijacking

``The pirates have weapons, GPS systems and know what they are looking for,'' Joseph Medina, director of Asia-Pacific and Maritime Security at Business Profiles Inc., said at the FPSO Asia Congress conference in Singapore today.

The Somalian hijacking prompted Frontline Ltd., the world's biggest tanker operator, and owners controlling almost a quarter of the fleet to say they may avoid the region, lengthening journeys. Since January, at least 91 vessels have been attacked in the Gulf of Aden.

The European Union last month joined the North Atlantic Treaty Organization, India, Malaysia and Russia in deploying vessels to combat piracy.

To contact the reporter on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net