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LNG – Stepping on the gas

“Stepping on the Gas” was the title of an online webcast that was part of investment powerhouse Deutsche Bank’s initiating coverage of the LNG Shipping sector, spotlighting analyst Chris Snyder- who leads the bank’s research into this attention-grabbing sector.

Eyeballs are focused on LNG because daily hires have already reached above $100,000 per day even before the Northern Hemisphere’s seasonal deep freeze begins. DB’s overall message is one of “a positive outlook, with strong secular demand and slowing supply growth”.

Two players earned coveted “Buy” recommendations. Golar LNG (GLNG) gains the DB nod, with Snyder noting its spot market exposed fleet, and its moves beyond merely transporting molecules with infrastructure projects, notably in a floating LNG facility in West Africa, and an LNG power plant, with an FSRU, in Brazil, coming on line.

Also gaining the “Buy” recommendation is GasLog Ltd (GLOG), with the analyst emphasizing its “pure-play” status (only LNG vessels) and its shrewd timing moves as it takes delivery of modern vessels “… at the right point in the cycle.” In his report, Snyder explains that GLOG is “(taking) delivery of 10 vessels from 2018-2020, a period of strong rates.”

Developments predicted several years ago when economists were trumpeting an upcoming “Golden Age of Gas” are now actually happening; with an acute ramp-up of liquefaction capacity, which gives rise to shipping demand, over the next few years. By DB’s reckoning, such capacity is “ramping at fastest pace in history,” and, based on all projects under construction, will be growing at 35% from 2018 to 2020.

Citing data from Wood McKenzie, the report suggests that between 35–40 million tons per annum (TPA) of liquefaction will be added in each of 2019 and 2020, following on growth of nearly 25 mtpa in 2018. These huge increases, will, in turn, “drive double digit annual growth for LNG trade.”

Much of the incremental trade will be ex-US, with DB suggesting that the US (with a current market share of circa 7%) will “account for 50% of liquefaction capacity growth through 2020.”

As for vessels, the analysts cite a low newbuild orderbook, with anticipated fleet growth of 6% during each of 2019 and 2020 – roughly half of historical averages (11% growth) and also half of 2018’s 13% fleet growth.

The predicted result is a continued tightening of hire rates, with 2019-2020 bringing the “strongest two-year stretch since 2010-2011” when an earlier vessel supply/demand imbalance caused daily hires to spike up to the region of $140,000 per day.

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