CG Finance Blog: LNG Market Overview

Great action and movement seem to be happening in the Liquefied Natural Gas field.

First of all, as Bloomberg reported, entrepreneur Clive Palmer is considering exporting liquefied natural gas from his $8 billion gas project in Papua New Guinea. The evaluation-estimation is that there are about 28 trillion cubic feet of gas, with a price of more than $35 billion assets. The first shipment from Exxon Mobil Corp’s $19 billion LNG development in Papua New Guinea left the country earlier this month.

In addition, Swift Worldwide Resources, a firm that staffs big global energy projects with engineers, expects to go public (IPO) or be acquired within the next five years. Swift, traditionally has provided oil and gas engineers to so called mega-projects like those that produce liquefied natural gas, has seen its client base expand due partly to the oil and gas drilling boom in North America.

On the side, a major player in the LNG field Cheniere Energy Inc, with a market cap of $16,31 billion, signed a 20-year sale and purchase agreement with Iberdrola SA, which agreed to purchase about 400,000 metric tons a year of liquefied natural gas. After that news, Cheniere Energy Inc (LNG), jumped from $64.15 to $67.53 (right now).

From a political perspective, US Department of Energy continues to take steps to ensure the safe and environmentally sustainable supply of natural gas, according to the DoE, the Natural Gas Act directs the Department of Energy to grant Liquefied Natural Gas export authorizations to non-Free Trade Agreement FTA countries unless the Department finds that the proposed exports “will not be consistent with the public interest”.

All the above have a strong impact on the LNG shipping sector, and owners and operators seem to be well-positioned against all these updates and upcoming deals, even if they will be faced with supply and demand issues because of the LNG vessels orderbook.

Another thing to take into consideration is that commodity prices for WTI Crude Oil and Brent Crude Oil are moving up last weeks which affect LNG prices directly. Higher crude oil prices affect the cost of gas, home heating, oil, manufacturing and electric power generation. How much? According to the EIA, 96% of transportation relies on oil, 43% of industrial product, 21% of residential and commercial, and 3% of electic power. However, if oil prices rise, then so does the price of natural gas, which is used to fuel 14% of electic power generation, 73% of residential and commercial, and 39% of industrial production.

Now let’s take a look at the major LNG shipping companies and their Q1 Results 2014 .

Golar LNG, reported first quarter 2014 net income of $13 million and also took delivery of the LNG carrier, Golar Crystal on May 15. And, company is going to take delivery of another 7 vessels in 2014. Golar’s stock price rose from the opening of 02/01/2014 at $36.21 to $46.63 right now, 28.77%.

Graham Robjohns, CEO, said in the latest conference call, “The current short-term LNG carrier markets is of course weak and has been limited contracting completed recently. However, there is well over 100 million tons of new liquefaction production coming on stream or expected to come on stream by 2020 around 90 million tons of this by the end of 2016, and therefore in our view the medium term demand outlook for LNG carriers is very strong, provides a strong growth avenue for partners moving into the future”.

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Gaslog Ltd, reported a net profit for the period of $9,6 millions, an increase 195% compared to last year’s same period. A significant point is that company decrease its Total Liabilities from $1,177 millions (2013) to $1,150 millions (2014). Company’s vessel arrived recently in Papua New Guinea where the Exxon Mobil project is just starting up.

Simon Crowe, CFO, stated that “It’s been an incredibly busy but very satisfying period. We have further strengthened our financial position and set ourselves up to take advantage of the forecasted strong growth in the LNG market”.

Company’s CEO, Paul Wogan added that “We have very strong demand for all of our capital market offerings and we thank our shareholders, bondholders and unit-holders for their ongoing support thanked shareholders”.

Gaslog’s share moved from $17.09 at 02/01/2014 to $24.88 right now, and hit a peak price at $28.89 (intraday) at 06/05/2014.

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Positive cash flows have shown Dynagas LNGPartners LP and Teekay LNG Partners LP. Teekay that reported an increase of 12% from Q1 2013. Dynagas has gained approximately a 7.81% YTD, and Teekay LNG a 3.35% respectively.