Summary
The LNG shipping sector faces a challenging landscape, as highlighted by the contrasting trends in UPI TCE and spot rates. While the UPI TCE for the last quarter averaged $73,000 daily, it is projected to fall to $70,000 per day, reflecting a notable drop from earlier highs. This decline contrasts with spot rates, which are under pressure due to negative trends and growing gas prices. These dynamics are reshaping market behaviour, with tankers being diverted to Europe and potentially used for floating storage, which could stabilise or reverse spot rate declines.
The broader market uncertainty is evident in the constituent performance, with significant losses among key players like Tsakos Energy Navigation and Flex LNG, juxtaposed against gains for companies like New Fortress Energy and Awilco LNG, signalling a mixed outlook for the industry.
UPI & SPX
Last week, the UP World LNG Shipping Index (UPI), which tracks listed LNG shipping companies, lost 4.18 points, equivalent to 2.50%, closing at 163.40 points. The S&P 500 index gained 1.06%. The chart below illustrates the performance of both indices with weekly data.
Broader view
The UPI move by the end of the year appears to be a done deal. Although the index has not yet broken the support we wrote about last week, almost all companies have started to head lower. Still, the situation is unclear, and the cold weather may cause a radical change in direction.
In the background, we see the pressure of spot rates, especially their future development, as the first reports about negative spot rates have appeared. It’s a bit of a paradox because our UPI TCE, which measures the real TCE of UPI constituents, shows rates down almost five thousand dollars from the second quarter, but they were still around $73,000 daily for the past quarter. We are projecting a drop to $70,000 per day for the fourth quarter.
Gas prices have started to rise, especially in Europe, and the first tankers are being diverted from Asia to Europe. Further growth may see tankers used as floating storage (contango), reducing or reversing the pressure on spot rates.
Constituents
As the UPI has declined after three weeks of growth, we begin our summary with the weakened companies.
Tsakos Energy Navigation (NYSE: TEN) lost nearly 10% after reporting quarterly results. Although the company announced a higher 2024 cumulative dividend (a 50% YoY increase), it wasn’t enough to break the downtrend.
Flex LNG (NYSE/OSE: FLNG) suffered the second most significant loss, surrendering 8.4% after the ex-dividend. This decline illustrates investors’ current view: cash the dividend and stay off.
Japan’s “K” Line (TSE: 9107) fell 7.5% to get back to its support. Another Japanese company, Mitsui O.S.K. Lines (TSE: 9104), did not sustain new highs. It erased three weeks of gains with a 5.5% loss, which shows how difficult it is for companies in the LNG sector to grow at the moment.
Norway’s Cool Company (NYSE/OSE: CLCO) wrote off a similar 5.4%. While the decline is significant, it was more extensive during the week and only recovered to the level above on Friday.
Malaysia’s MISC (KLSE: 3816) wrote off 4.2% and went back to where it started its rise at the beginning of the year, which led to it breaking the 8.8 ringgit mark.
The last Japanese representative, NYK Line (TSE: 9101), lost 3.6% and broke through previous support. However, given the developments, we can still say its course is going sideways.
The trio of gas and oil producers showed a very mixed performance. Shell (NYSE: SHEL) lost two per cent and broke through support. BP (NYSE: BP) wrote off 1.4 per cent but held its course for a fifth week before another downtrend. Chevron (NYSE: CVX) lost 0.3 per cent and formed a doji pattern near its uptrend.
Nakilat (QSE: QGTS) fell 1.3% but is on the verge of a more profound decline.
On the other hand, upstream and downstream performers are still doing well. New Fortress Energy (NASDAQ: NFE) added 9.4%, GLNG (NASDAQ: GLNG) rose 6.6% – though its gains were much more significant during the week – and Excelerate Energy (NASDAQ: EE) rose 1.3%.
Awilco LNG (OSE: ALNG) is up 4.8%, and it looks like it could break its spot rate-induced decline on one of the two ships.
Dynagas LNG Partners (NYSE: DLNG) is up 4.66% due to renewed distributions to unitholders. But even here, there were significant moves on both sides during the week.
About UPI
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: UP-Indices.com via LNGshippingStocks.com