E Opportunities In A Wrecked Shipping Industry: LNG Carriers

This article is Part 2 in a 3 Part series about the investment opportunities in shipping.

In the first part of this three-part series on shipping, I described how shipping stocks, trading at the cheapest valuations in over 20 years, offer investors a unique opportunity to profit off the recovery in the industry. Since then, trade tensions have escalated, with the U.S and China on the brink of a full-blown trade war. This has understandably caused investors to be skeptical about investing in shipping, which relies heavily on free-flowing global trade. However, some areas of the shipping industry still present huge opportunities despite the protectionist rhetoric. One such area is LNG (Liquefied Natural Gas) carriers.

Natural gas has increasingly become vital to the worlds energy market. Since 2000 the number of countries importing LNG has quadrupled. As a cheap clean-burning fuel, it has supplanted coal as the go-to-cheap energy source. Natural gas is already the most used energy source in the United States and all signs point to its increased use abroad. Liquefied natural gas carriers or LNGC’s are the vessels responsible for transporting natural gas (in its liquefied form) from producing countries such as the U.S or Qatar to energy-starved nations in Europe and Asia. LNGC’s represent a very small portion of the worlds commercial fleet but as demand for natural gas explodes and production in the U.S increases, it sets up LNG shipping to be extremely profitable for investors.

Much like the rest of the shipping industry the market for LNG carriers suffered greatly during the financial crisis in 2008 and the oil crash in 2014-15. These crises significantly depressed the market for natural gas and by extension natural gas trading and shipping. In 2012, the spot price for LNG carriers was an eye watering $143,750 per day, by March 2016 the spot price had fallen to a mere $27,500. Now as the energy and natural gas markets recover LNG carriers are set to make a comeback, by October 2017 spot prices had increased almost 83% from their 2016 lows to $50,250. With stocks in this sector starting to bottom out investors can benefit greatly off the recovery.