LNG shipping stocks performed poorly due to a warm winter and high natural gas storage, which led to a shorter peak season. The LNG shipping sector, as represented by the UP World LNG Shipping Index (UPI), slowed down in the first quarter of this year, declining by 1.32%. In contrast, the S&P 500 (SPX) index
rose, gaining 3.81% during the first quarter. This unusual underperformance of UPI compared to SPX in the first quarter is illustrated in the chart below.

Chart of the UP World LNG Shipping Index with S&P 500 (Source: UP-Indices.com)
Chart of the UP World LNG Shipping Index with S&P 500 (Source: UP-Indices.com)

Do the rates decline?

The first quarter is usually part of the best LNG season. This year is different due to a short and warm winter, causing natural gas storage to remain high in Asia and Europe. As a result, freight rates for LNG carriers declined earlier than usual. At the end of 2023, spot rates were above $150k per day but later declined to below $50k per day. Charters fell to a level of around $50k per day, according to Fearnleys. On the other hand, our UPI TCE data shows that the average contract of the UP index constituents is above $90k per day. Our data confirmed the extension of two-time charters for two Flex LNG vessels via options exercising. These contracts should be around $80k per day. Rates are expected to rise again during the second quarter.

Alex Froley from ICIS shared a picture of LNG imports in Q1 and mentioned that imports to Asia were quite high due to lower natural gas prices. Countries such as Bangladesh, Pakistan, and China took advantage of the drop in LNG prices.

LNG imports to Asia

The closure of the Suez Canal due to Houthi attacks has impacted LNG shipping. Only Chinese, Russian, or Iranian vessels were allowed to pass through, leading to longer routes and increased vessel demand for LNG delivery. Vitol moved through the Suez Canal a few days ago, said TradeWinds.

Alpha

The following chart shows the performance (Alpha) of the UPI to the SPX. Numbers below zero sign lower gains for UPI to SPX and vice versa.

Chart of the performance (alpha) of the UP World LNG Shipping Index
Chart of the performance (alpha) of the UP World LNG Shipping Index

Beta

The next chart shows the volatility of the UPI to the SPX. Beta was declining, and the decrease continued in July.

Chart of the volatility (beta) of the UP World LNG Shipping Index
Chart of the volatility (beta) of the UP World LNG Shipping Index

Constituents

UPI consists of nine global LNG shipping companies from the U.S.A., Europe, and Asia. All constituents are named with tickers in the table with their gains or losses. The table is from the top Q1 gainers to the bottom.

 

 

 

Performance Q1 2024 (CAGR)

Performance Q1 2024 with dividends (CAGR)

Nakilat (QSE: QGTS)

4.70%

5.92%

Capital Product Partners LP (CPLP)

2.62%

2.92%

Chevron Corporation (CVX)

1.60%

1.95%

BP. p.l.c. (BP)

1.50%

1.89%

Excelerate Energy, Inc. (NASDAQ: EE)

1.47%

1.53%

Golar LNG Limited (GLNG)

1.38%

1.73%

MISC Berhad (KLSE: 3816)

1.20%

1.73%

Shell plc (SHEL)

0.66%

1.00%

Exmar NV (BSE: EXM)

0.66%

0.66%

Dynagas LNG Partners LP (DLNG)

0.11%

0.11%

UP World LNG Shipping Index

-1.32%

-0.02%

Mitsui O.S.K. Lines Ltd. (TSE: 9104)

-2.07%

-1.43%

Kawasaki Kisen Kaisha, Ltd. (“K” line) (TSE: 9107)

-2.79%

-0.45%

Korea Line Corporation (SM Korea Line) (KRX: 005880)

-4.65%

-4.65%

Cool Company Ltd. (CLCO) (OSE: CLCO)

-4.97%

-3.82%

Nippon Yusen Kabushiki Kaisha (TSE: 9101)

-5.09%

-4.55%

New Fortess Energy Inc. (NFE)

-5.62%

-5.52%

Awilco LNG ASA (OSE: ALNG)

-5.94%

-1.53%

Flex LNG Ltd. (FLNG) (OSE: FLNG)

-6.66%

-5.75%

 

 

During the second quarter, LNG shippers typically experience a period of rest. As the peak season of winter comes to an end, there are fewer new deals being made, causing spot rates to decrease after accumulating during the winter. Despite this, investors have not sold their positions this year. The UPI remained relatively stable, staying within a price range above 140 points. In instances where it fell below this range, it quickly rebounded.

Top gainers

The following three charts display the top gainers of the second quarter. UPI is calculated on a weekly basis, filtering out short-term trends based on daily trading. The first chart illustrates the stock price of Cool Company (Oslo-listing). CLCO experienced an increase before the U.S. IPO and then again before the Q1 dividend ex-date on May 31. In June, the company announced the execution of options for two LNG carriers owned by the main shareholder, Eastern Pacific Shipping.

Chart of the UP World LNG Shipping Index with Cool Company (source: UP-Indices.com)
Chart of the UP World LNG Shipping Index with Cool Company (source: UP-Indices.com)

Awilco LNG announced its second-ever dividend on May 31, which provided support for its price, similar to February. The dividend amounted to 0.5 NOK.

Chart of the UP World LNG Shipping Index with Awilco LNG (source: UP-Indices.com)
Chart of the UP World LNG Shipping Index with Awilco LNG (source: UP-Indices.com)

Kawasaki Kisen Kaisha rises continuously without any support from new corporate action. It is just an up-trend.

Chart of the UP World LNG Shipping Index with "K" Line (source: UP-Indices.com)
Chart of the UP World LNG Shipping Index with "K" Line (source: UP-Indices.com)

Top decliners

This time, a short comment on the most dropping LNG shippers is worth it. Flex LNG experienced a drop of over 6% in the first quarter after a year of trading at around $30. The stock fell to $25 when one of its contracts was not extended through an option exercise. This, combined with decreasing freight rates, led to a decline in the stock price. It’s interesting to note that even during winter, investors were concerned about charters below market rates at $80kpd and the fleet being 90% committed. Now, the concerns have shifted in the opposite direction.

Chart of the UP World LNG Shipping Index with Flex LNG (source: UP-Indices.com)
Chart of the UP World LNG Shipping Index with Flex LNG (source: UP-Indices.com)

Conclusion

Winter, which is the best season for LNG shippers, is approaching. New time charters have been announced, leading to a rise in LNG shipping stocks. Looking at the latest chart, let’s turn our attention back to UPI. This chart demonstrates Bollinger Bands. UPI has broken into the high-volume range and is well above support. This range is defined by a support line at 145 points and two resistance levels at 155 and 158 points.