For investors seeking pure-play exposure to rising demand for LNG, we prefer shipping companies that own fleets of LNG carriers, especially conservatively run names that boast ample long-term contract coverage and reliable distributions.
Investor interest in this industry surged in the wake of the Fukushima Daiichi crisis, as rising LNG demand in China and Japan’s aggressive purchasing of spot cargoes sent prices to the moon and redirected shipments that had been destined for Europe.
In this environment, the supply-demand balance shifted in the favor of shipowners, with daily rates in the spot market--where vessels are engaged on an ad hoc basis--soaring to more than $150,000 from about $65,000 in early 2011 and $20,000 in mid-2010. Day-rates on three- to five-year fixtures also climbed, while long-term contracts ticked up modesty.
With the markets for oil tankers and dry-bulk vessels suffering from a significant supply overhang, upstart shipowners placed speculative orders for new LNG carriers to take advantage of elevated day-rates in the spot market.
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Elliott and Roger on Sep. 30, 2014
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