Introduction
Last year was very difficult and different for the LNG shipping sector. In this report, we cover the main changes in the first section, show the yearly performance of all publicly listed LNG shippers, mention crucial events, and consider the future.
New normal?
The UP World LNG Shipping Index (UPI) tracks publicly listed global LNG shipping companies. In 2023, it ended at new all-time highs, and the LNG shipping sector was forecast to continue its traditional pattern of winter growth, spring decline, and summer growth, which intensifies towards the end of the year. However, this time, several factors were different. The main themes of LNG shipping in 2024 were oversupply and spot rates. The chart shows the development of UPI and the S&P 500.
Crucial changes in 2024
The UP World LNG Shipping Index (UPI) includes data from 2020 onwards. Last year was considered atypical, prompting us to create a simple moving average of the yearly trend based on weekly percentage gains or losses. The UPI gains and losses are also represented in percentage terms.
Previous years have not been typical either. The COVID-19 pandemic significantly impacted the index in 2020, followed by the Russian invasion of Ukraine in 2022 and the preparations leading up to it in the prior year.
This report calculated a moving average of UPI data from 2020 to 2023 to better understand the differences over the past year.
Here are four key sections:
1. The start of the year performed worse than expected as the peak was much lower than usual. However, the decline in March was less severe. During this period, reports of falling spot rates emerged and have persisted. The second quarter saw numerous declines in the UPI, coinciding with the end of the winter season and the onset of regular dry docks.
2. In June, as preparations for winter commence, the index typically rises. Notably, this peak was absent last year.
3. Conversely, the latter half of the summer experienced a significant weakening of the UPI, establishing a negative trend for many companies throughout the remainder of the year.
4. This negative trend continued throughout the last two months of the year, only to be surpassed at the end of the year and in January.
Based on this year’s data, we theorise there are now two smaller peaks—one in winter and another in summer—rather than a single peak.
With older steam vessels being phased out, the LNG shipping sector is entering a new phase, prioritising efficiency over simple capacity expansion.
Constituents´performance
UPI consists of nineteen global LNG shipping companies from the U.S.A., Europe, and Asia. All constituents are named with tickers in the table with their 2024, Q4-24 and January 2025 gains or losses. The table is from the top 2024 gainers to the bottom. Some UPI constituents are not listed on U.S. exchanges.
Dividends are an essential part of investing, and shipping companies know this. UPI’s yearly performance was +4.41%.
Top gainers
Excelerate Energy started rising in February 2024 and still holds its top prices. This FSRU specialist and gas seller announced its Q4-23 results and the $50 million repurchase program on February 28th, 2024.
“Excelerate Energy delivered a powerful year of financial results in 2023. The consistent earnings contribution from our core regasification business and the solid performance of our contracts in Brazil highlighted the unique potential of our integrated strategy,” said Steven Kobos, President and Chief Executive Officer of Excelerate.
Dynagas LNG Partners rose since the end of March and, in two rising waves, got above $5.40. The rise started a week before Q4-23 earnings releases. During this event, DLNG announced the refinancing of its debt: „Signed a term sheet with a significant financial leasing operator in Asia for the lease financing of four of our six LNG carriers in an amount of up to $345.0 million.“ (source: Q4 and 2023 results announcement). The terms of the previous debt, which started in 2019, forbid the partnership from paying any distribution. After the refinancing, the first distribution was announced for the third quarter of 2024. DLNG operates six LNG carriers, three steam and three TFDE. All vessels are under a long-term charter till 2028. This shows a paradox of current spot rates – even an old vessel is competitive with modern ships as long as it has a long-term contract.
Golar LNG rose in mid-March after the company had gone sideways for a year. This initial rise was not accompanied by specific news but followed the Q4-23 results released on February 29th. FLNG Gimi has announced readiness to start operations. In September, a new impulse—or a rumour of a takeover—pushed the price above $40.
Top decliners
Two of the most dropping companies are affected by the spot rates. Cool Company holds part of its fleet on the spot market, and Awilco has one of its two ships on the spot market after finishing the time charter.
New Fortress Energy started its decline in March and accelerated it in July. Both waves were started by concern about new financing. An offering of $500 million of senior secure notes was announced in March. A day later, the amount was upsized to $750 million, and a tender offer was also announced to purchase cash for up to $250,000,000 in aggregate principal amount of its outstanding 6.750% Senior Secured Notes due 2025. In July, the closing of a new $700 million loan was announced, just after successfully producing LNG at its first FLNG unit. This step led to a significant drop in shares and later to changes in top management. In October, it also announced steps to debt and equity transactions to decrease the company liquidity, which started an uptrend lasting till now.
Awilco LNG has done well since March. The refinancing was signed in May, but in June, the long-term charter of WilForce was cancelled, and since then, the carrier has been traded on the spot market. Previous TCE was above $120,000 daily, one of the highest LNG shippers. Later, the dividend for Q3 was reduced to NOK0.25 from 0.75; for Q3 and Q4, it was not declared.
Jon Skule Storheill, Chief Executive Officer, commented on the Q3-24 press release: “After almost two years with robust earnings where both our vessels have been employed on well-paying Time Charter contracts, the Company has experienced a significant drop in earnings in the third quarter. WilForce is trading in the weakest LNGC spot market experienced for years; considering this is normally high season, it is surprisingly weak. The Company’s financial position is robust, with a comfortable cash position and lowered cash break even following the recent refinancing. Due to the present weakness and lack of visibility of near-term earnings, the board resolved to halt dividend payments until earnings are improved.”
Cool Company started to rise in May, similar to the UPI. A new long-term contract for a new build was announced, and the rise lasted till the end of May when earnings for Q2 were released. Here, the first decline of TCE from $87,300 to $77,200. This was still a standard value, but the development of rates was not promising, and investors started to look at the future rise of vessels without a long-term contract. This accelerated after Q3 results, where TCE was back at $81,600, but the dividend was reduced to $0.15 from $0.41, and a new build, Kool Tiger, was repositioned in the Atlantic basin for spot rates. A share repurchase program of up to $40 million was also announced.
2024 overview
This overview is based on our weekly reports and shows that last year was again full of unpredictable events, including geopolitical challenges, spot and interest rates, and investor preferences.
First quarter
In January, geopolitical problems started immediately on a vital shipping lane. Rising tension in the Red Sea and warm winter affected LNG shippers and the U.S. response to Houthis attacks in Jordan. Nearly all vessels had to sail around the Cape of Good Hope for security reasons.
February brought the early end of the winter season. Due to low demand and high supplies, LNG shipping shares and the price of natural gas were pushed down. Henry Hub was currently close to its minimum of 2020. The spot rates of LNG shipping continued declining. The problem was that spot rates did not grow significantly above $100kpd during the year’s peak period, so their decline was faster than usual. However, the longer route around the Cape of Good Hope partly offset this.
March and April brought low volatility of UPI. This was mainly due to the off-season on the global LNG market. The three new trends of UPI constituents were 1) investors’ confidence in the LNG market represented by a rise of Qatar´s Nakilat, 2) the growth of gas and oil drillers, and 3) ending the uptrend of the Japanese trio NYK Line, Mitsui O.S.K. Lines and „K“ Line.
Second quarter
A positive development in May was that Asian states continued to take advantage of low natural gas prices and spot rates, leading to an early season, and UPI went close to all-time highs again.
In June, the demand for LNG remained strong, mainly in Asia, but UPI experienced a significant drop of 4.25% in mid-June, closing at 155.45 points, while the S&P 500 index gained 1.58%. Despite most charters being long-term, spot rates still negatively affected the sector.
Third quarter
In July, spot rates rose due to Sparks Commodities: Atlantic rates rose to $87,000 per day, while Pacific rates rose by $4,000 to $51,750.
The positive sentiment on LNG shipping stocks pushed UPI to a new all-time high with a strong move but only average traded volume. One of the gainers in summer was Golar LNG (NASDAQ: GLNG), which rose 7% following a major 20-year deal with Argentina’s Pan American Energy. New Fortress Energy (NASDAQ: NFE) was also successful, with a gain of over 20% in one week, driven by its FLNG Altamira LNG project launch. That was the last rise of NFE before the fall, which continued until November.
A Louisiana district court preliminarily cancelled the moratorium on new U.S. LNG export projects. This move can boost confidence in the LNG sector even though a sufficient number of projects have been permitted before.
August brought a global sell-off, but it was only a short period. Yet, in August, UPI made a new all-time high. The traded volume was under average.
Capital Product Partners LP has rebranded as Capital Clean Energy Carriers, with a new ticker symbol CCEC, and is also listed on NASDAQ.
At the end of August, another sell-off pushed UPI and global stock markets down. There was a trendline for UPI, and UPI was able to bounce up again to new all-time highs. This trendline broke in October, which meant a change in trend, and UPI lost for the rest of the year.
In September, rumours of the potential takeover of Golar LNG appeared, which pushed its shares up.
Fourth quarter
Spot rate challenges intensified in October as the expected pre-winter surge failed to materialise, leading to continued declines. According to a weekly summary by Marwa Rashad from Reuters, there has been a resurgence in LNG spot demand from Asian customers, while European storage levels remain high at 95% capacity. According to Spark Commodities, the spot rates are approximately $20,000 per day for the Atlantic and around $36,000 per day for the Pacific, below break-even levels. US LNG prices have dropped back below $3.
Q3 results: Oystein Kalleklev, CEO of FLEX LNG, stated the rates: “The spot market is liquid, but rates are poor, and we expect the market to stay poor for the remainder of the year.” According to him, the low rates are caused by the excess of available ships: “You might have floating storage if gas prices are in contango, meaning that they are higher later in the year than spot, which can typically drive up to 30, 40 ships in floating storage. We have high gas prices this year, but they are not in contango. So it means you are disincentivised to do floating of the cargoes. So the number of available ships have been built up, also with the scheduled deliveries of ships.”
The fear that low spot rates will affect dividend payments has also materialised. This inconvenience befell Awilco LNG (OSE: ALNG), which cancelled its Q3 dividend due to low rates. Its TCE fell from $122,900 in Q2 to $58,000 in Q3.
Low rates will rejuvenate the world’s fleet, with newly delivered ships displacing inefficient old ones. After the long-term contract expires, steam-powered ships are no longer worth operating. Lucy Hine from TradeWinds wrote in her article, “South Korean owner SK Shipping has sold four LNG carriers for demolition in an unprecedented multi-ship move that sends a clear signal to other players considering the future of their elderly steam turbine vessels.”
It is essential for the future of LNG shipping that most of the ships that are ordered already have a pre-negotiated long-term contract. And it’s not just Qatar Energy’s mega-order.
New Fortress Energy led with a 13.6% gain after the Q3 earnings report, including bond refinancing news and progress in projects across Nicaragua, Puerto Rico, and Brazil. Excelerate Energy saw a 10% increase, backed by a significant dividend hike and fleet expansion plans. Although LNG shipping faces challenges like low spot rates, it remains critical to the global economy, with several companies experiencing substantial gains.
Winter’s slow start, typically the sector’s peak season, continues to impact the market. This was evident during Norwegian Cool Company’s (NYSE/OSE: CLCO) Q3 earnings call, where executives highlighted concerns over spot rates. Despite achieving a solid TCE of $81,600, the lack of long-term contracts remains a significant challenge. Additionally, the recent dividend cut further underscores the sector’s pessimistic outlook.
On the other hand, cooling in Asia is increasing the demand for natural gas and its price. This growth was more substantial than the commodity price increase for producers. US gas prices (Henry Hub) reached $3,276, an almost 5% week-on-week increase.
In December, Gas prices started to rise again, especially in Europe, and the first tankers were being diverted from Asia to Europe. Further growth may see tankers used as floating storage (contango), reducing or reversing the pressure on spot rates.
Global markets remained relatively stable despite geopolitical turbulence—including South Korea’s brief martial law and Chinese manoeuvres near Taiwan.
The UPI recovered during the shortened Christmas week, rising prices above previously broken support levels. However, trading activity was lower than usual and mainly consisted of corrections to previous declines of index constituents.
Meanwhile, cold weather was still driving up the price of natural gas. However, the increased demand has not yet led to a rise in spot rates for LNG tankers. On a related note, Ukraine recently received its first U.S. LNG shipment through Greek ports, while the Russian LNG tanker Pioneer returned from a four-month unsuccessful mission to Asia. The end of the year brought sufficient growth, and the UPI strengthened for the second week in a row.
Winter has arrived in the northern hemisphere, and the pressure on gas and LNG prices continues. Ukraine has stopped sending Russian gas to Europe, which only brings grief to countries that neglected to prepare. But so far, these changes have not translated into spot rate changes. However, at least some investors have taken advantage of the low share prices and the absence of most investors, pushing stock prices up significantly.
Future of LNG shipping
What is the future of LNG shipping? In a word, optimistic. LNG is now a crucial global commodity, and its importance is still rising. The third wave of development is now running, but the construction of new liquefied capacities is a bit late. On the other hand, the shipbuilders are on time, so the vessel is oversupplied now.
The vessel oversupply is shown on the Flex LNG Q4 presentation chart.
This demonstrates the maturity of the LNG sector. Before the US’s second wave of LNG development, this sector was considered new and risky for infrastructure investors due to uncertain demand. That perception has changed; new standards and economic factors are now critical.
The third wave of development is now running, and the near rise of capacity in Qatar and other states will add about 200 MTPA. Shipping companies prepare with newbuilds for this supply (and demand) rise. Steam LNG carriers with old long-term contracts – the publicly listed ones are mainly Japanese shippers, pioneers of LNG – are now taking work away from modern vessels. Modern carriers without long-term charters are effective, but now, there is only a small space for them. As soon the charters of the steamships are finished, steamers will be uncompetitive. The last picture, again from the Flex LNG Q4 presentation, shows the evolution of steam vessel rates.
The scrapping of steam vessels has already begun, but the pace is still slow. This year may be challenging for vessels depending on spot rates; however, if there are no significant geopolitical changes, we can expect improvements by the end of the year. The new U.S. administration is promoting natural gas drilling, which is making the global market more competitive. As LNG prices decrease, demand will rise, benefiting LNG shippers.