LNG shipping stocks are currently facing a challenging market environment, as evidenced by recent declines in the UP World LNG Shipping Index and spot charter rates. Companies with long-term contracts benefit from stability, while those without such agreements remain at risk due to fluctuating spot rates. This uncertainty also affects companies with newbuildings that do not have long-term contracts yet.
UPI & SPX
Last week, UPI, which tracks listed LNG shipping companies, lost 2.04 points, equivalent to a 1.25% decrease, closing at 161.56 points. This was a more significant decline than the S&P 500 index, which lost 1.37%. The chart below illustrates the performance of both indices with weekly data.
Broader view
Several companies corrected the previous week’s decline, but there were some new losses. Thus, the situation does not look like what we have been used to for years. It is a situation that companies have been discussing since the beginning of this year – one of the natural solutions is a cleansing and significant rejuvenation of the global fleet, among others. Let’s not forget that the already low spot rates are in place for the newest ships with the lowest operating costs, with even lower rates for older vessels with higher operating costs.
According to Spark Commodities, spot LNG tanker charter rates declined further, mainly in the Atlantic (European) region. The development of UPI companies was less clear.
Constituents
Most ships in the UPI are bound by long-term contracts currently valued much higher than the existing spot rates. This situation provides stability and security in an otherwise volatile market. However, there are concerns for companies that have yet to deliver new ships and do not have long-term contracts. Although ship deliveries are scheduled for two or more years from now, the upcoming management commentary on the third-quarter results will address this issue in detail. Additionally, updates on the construction status of new natural gas liquefaction facilities will be interesting. It remains true that one to two tankers are required for every one million cubic meters (m³) of LNG.
Mitsui O.S.K. Lines (TSE: 9104) gained the most in the past week, gaining 6.4%. Excelerate Energy (NASDAQ: EE) and another Japanese company, “K” Line (TSE: 9107), are next with virtually identical gains. Their shares are up 4.6% and 4.4%, respectively.
Five other companies experienced similar percentage increases in value. SM Korea Line Corporation (KRX: 005880) and Chevron (NYSE: CVX) both saw a 1.5% gain. Misc (KLSE: 3816) and the third Japanese company, NYK Line (TSE: 9101), both rose by 1.2%. Shell (NYSE: SHEL) increased by 1%.
New Fortress Energy (NASDAQ: NFE) and BP (NYSE: BP) led the declines with similar results—down over seven per cent. BP fell after reporting third-quarter results, while NFE continued the decline that began at the turn of the year.
The current situation has negatively impacted Cool Company (NYSE/OSE: CLCO), which has lost six per cent. We are eager to see an update on contract news for new ships to be delivered over the next two years and beyond.
Tsakos Energy Navigation (NYSE: TSE) also continues to decline, falling five per cent last week.
Golar LNG (NASDAQ: GLNG) weakened by 4.3 per cent, and Exmar (BSE: EXM) lost 3.5 per cent.
Other losses were considerably smaller. Dynagas LNG Partners (NYSE: DLNG) fell 1.6%, Nakilat (QSE: QGTS) dropped 1.5%, Flex LNG (NYSE/OSE: FLNG) lost 1.3% and Awilco LNG (OSE: ALNG) lost 1.1%.
Established in 2020, the UP World LNG Shipping Index is a rules-based stock index family designed to measure the performance of worldwide publicly traded companies involved in the maritime transport of liquefied natural gas (LNG). This unique index covers 19 companies and partnerships worldwide, representing over 65% of the world’s LNG carrier fleet in 2020. The UP Index offers premium services with freemium and trial access to charts. With Freemium, users can access the basic UPI vs S&P 500 chart after email registration. The trial includes full access for fourteen days.
Source: By By Tomas Novotny, UP-Indices.com