GLOP - 2022: Great Year For LNG Shipping Stocks

Summary

• The LNG shipping sector, represented by the UP World LNG Shipping Index, gained 45.76% in 2022.
• Two companies gained over 77%.
• The LNG shipping sector is finally profiting from years of infrastructure building, which is essential for the global energy supply.

Last year was again very successful for LNG shipping stocks. According to the UP World LNG Shipping Index, this sector posted an increase of more than 45%. In 2021, it was a gain of 38% .

Key factor Europe

The shift in the perception of LNG as a strategic energy source contributed the most to growth. After the Russian invasion of Ukraine, Europe accepted the opinion of the rest of the world and decided to use LNG to replace Russian natural gas supplied by gas pipelines. As a result, Europe hastily dusted off LNG terminal plans and received the first LNG cargo via floating LNG terminals (FSRUs) in the last quarter of 2022. This is a phenomenal success of the LNG shipping sector, showing its flexibility.

European demand thereby helped raise the price of LNG worldwide because arguably only the price could redirect LNG from its original destination in Asia to Europe. Germany expropriated Gazprom Germania, the owner of Nord Stream pipelines, and named it SEFE: Securing Energy For Europe. This is a very interesting moment as the Singapore unit of Gazprom Germania had a long-term contract with India to supply LNG. At least one cargo was redirected to Europe , and a low penalty was paid. It was still cheaper than the actual LNG price for Europe.

After all, according to the latest news, Germany is planning to build new gas-fired power plants that will replace decommissioned nuclear sources and non-ecological coal-fired power plants.

Of course, the LNG shipping sector benefited greatly from the current situation, but even here, there were companies whose shares could have been more successful in 2022. The following table shows the annual performance of stock prices of companies that outperformed the UP Index.

The results of the companies are calculated in the domestic currency; for the UP Index, they are all converted to USD. For clear identification, I include the ticker from the domestic stock exchange and possibly from U.S. stock exchanges if there is a dual listing. Monitoring volume and avoiding excessive bid/ask spreads are essential for OTC traded stocks.

Top LNG shipping gainers in 2022 (Source: Author and UP-Indices.com)

Awilco LNG

In 2022, the most significant gains were made by Norway's Awilco LNG (OSE: ALNG), ( AWLNF ), which operates two LNG tankers and, during the year, bought and sold a stake in another Norwegian company from the UP Index – Cool Company Ltd. (OSE: COOL).

According to the November decision, there will be a change in the dividend policy so that shareholders will be paid "a substantial part of the wave cash flow.” As a result, the first payment should already be in the first quarter of 2023. This should also be helped by extending the contract for the WillForce carrier by 18 months, valid during the first quarter of 2023. The charter will generate an EBITDA of approximately USD 73 million over the charter period, the company said in the Q3 2022 presentation.

New Fortress Energy

New Fortress Energy ( NFE ) is in second place among top gainers, with a growth of 77.34%.

This company bought Golar LNG Partners (ex-GMLP). In July, it transferred this fleet to Energos Infrastructure. In this joint venture, it has a 20% stake. The remaining 80% is held by Apollo Global Management ( APO ). This JV is newly chartering its FSRU Energos Igloo (ex-Golar Igloo) in the European terminal in Eemshaven.

In addition, significant efforts are being made to prepare five LNG production hubs in the Gulf of Mexico: Altamira, Louisiana, Lakach, and green hydrogen power plants (Beaumont, Texas). These terminals are the core business for NFE now.

Golar LNG

Shares of Golar LNG Ltd. gained +68.32% over the past year. Currently, the company focuses on constructing floating FLNG terminals, one of which is operational. This is FLNG Hilli (ex-Hilli Episeyo), the other - FLNG Gimi - is under construction. As of November 15, it was 90% complete.

The company owns shares of other LNG shipping companies: New Fortress Energy, Cool Company, and Avenir LNG. Shares in the first two were gradually reduced: For NFE, from 6% to 2.9%, COOL, 31.3% to 8.3%.

The stake in Avenir LNG remains at 23.5% (data from GLNG´s Q2 and Q3 2022 presentations).

Exmar NV

Last year was very successful for Belgian Exmar NV. In August, it chartered its sole FSRU to the Dutch terminal Eemshaven. In October, it chartered its only LNG tanker - the Excalibur - to ENI for ten years. With the sale of FLNG Tango again to ENI, the entire LNG fleet was thus employed.

The core business of Exmar is LPG transport.

Flex LNG

Norway's Flex LNG, listed on the Oslo and New York stock exchanges, posted a growth of 49.3% last year. A fleet of thirteen ultra-modern ships is employed on medium- to long-term contracts, with the first two expiring in mid-2025. The previous variable-rate agreements were changed to long-term ones before the Russian invasion, which gives investors and management better predictability.

The company regularly achieves a TCE (Time Charter Equivalent) of around $75kpd, providing a regular dividend of $0.75 per quarter.

GasLog Partners LP

This partnership operates fourteen LNG tankers - four steam and ten more-modern TFDEs. We can clearly see the charter price trends on the new contracts concluded during the third quarter (amounts according to the GLOP Q3 2022 presentation).

While a 34-month-long contract for steam tankers results in a daily EBITDA of about $37k, a one-year TFDE lease for the current winter season already means $133kpd. The two-year contract for TFDE, starting in February this year, means just under $70kpd. Of course, we don't know all details of the charters, but the trend is clear: steam-powered ships are getting new contracts thanks to the Russian-induced gas crisis. Otherwise, they were (and mostly still are) being considered mainly for potential FSRU conversion or scrapped.

Conclusion

The LNG shipping sector offers an interesting opportunity to investors, as the UP World LNG Shipping Index shows. This sector outperformed leading U.S. indices like S&P 500 ( SP500 ), Nasdaq 100 ( NDX ), and Dow Jones Transportation Average ( DJT ).

This article focuses on six global companies whose stocks were the most successful last year. Of course, not all are tradable in U.S. markets, but this comparison shows the global importance of LNG for energy safety.

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