Teekay Profits Booming on LNG Shipping Demand From Japan: Freight Markets

In a year when commodity carriers, oil tankers and container ships have lost money on the biggest trade routes, owners of vessels hauling liquefied natural gas are poised for the best rates ever.

The cost of hiring tankers to carry gas frozen at about 260 degrees below zero Fahrenheit more than doubled this year and will climb 20 percent to a record $120,000 a day in 2012, said Martin Korsvold, the analyst at Pareto Securities AS in Oslo who predicted this year’s surge in February. Teekay LNG Partners LP (TGP) and Golar LNG Ltd. (GOL) will report the best profits in at least four years in 2011, analyst estimates compiled by Bloomberg show.

While record returns for oil tankers and dry bulk carriers in 2007 and 2008 spurred owners to order the most new ships ever, creating a glut, contracts for LNG vessels weren’t made because gas projects were delayed by the financial crisis. Golar now expects gas cargoes to rise 21 percent by the end of 2012, compared with fleet growth of 3 percent, helping to keep charter rates rising after declining for three years through 2009.

“LNG is the hottest shipping investment,” said Erik Nikolai Stavseth, the analyst at Arctic Securities ASA in Oslo whose recommendation in January to buy shares of Golar LNG would have returned 95 percent for investors. “It’s the market where we see the highest demand growth right now, and we see this continuing all the way through 2013.”

Rates that rose about 11 percent to $41,000 a day in 2010 more than doubled to $100,000 this year, according to Pareto. The brokerage expects the rally to continue into 2013, with costs of $140,000. The cost of hauling oil, coal, iron ore and grains is moving in the opposite direction. About 90 percent of world trade is transported by sea, the Round Table of Shipping Associations estimates.

Fuel Expenses

Returns on supertankers that reached $177,000 a day in 2008 were at a negative $1,971 on Sept. 16, according to data from the London-based Baltic Exchange, which publishes daily rates for more than 50 maritime routes. Shipping companies will pay that amount because customers still cover some fuel expenses, cutting the cost of moving vessels into more profitable regions.

Capesizes, hauling mostly iron ore and coal, made an average of $10,723 a day since the start of January, heading for the worst year in at least a decade, bourse data show. Rates excluding fuel surcharges for container ships on the Asia-to- Europe route, the world’s second-biggest by cargo volume, were about zero in July and August, according to Morgan Stanley.

Orders for new LNG tankers declined in 2008 and 2009 as owners responded to gas producers delaying projects during the global recession. While supply of the fuel is now expanding, the fleet is failing to keep up.

Gas Vessels

A new carrier cost $210 million in March 2010, compared with $99 million for a supertanker and $57 million for a capesize, United Nations data show. The gas vessels need equipment to hold about 155,000 cubic meters (5.5 million cubic feet) of frozen liquid that expands to 95 million cubic meters in gas form, equal to about 25 percent of peak daily winter demand in the U.K., Europe’s biggest gas market.

LNG projects may add about 47 million metric tons to supply by the end of 2012, or the equivalent of 21 percent of existing output, Golar said in a presentation to investors on Aug. 18. The company expects 10 vessels to come from ship yards in that time, equal to about 3 percent of the existing fleet.

Slowing global growth may damp demand for LNG. Japan’s economy, the world’s biggest consumer, contracted an annualized 2.1 percent in the second quarter and will decline 0.35 percent for the full year, according to the median estimate of eight economists’ estimates compiled by Bloomberg.

Energy Demand

Energy demand dropped 1.5 percent in 2009 as the global economy slumped during the worst recession since World War II, according to London-based BP Plc. LNG usage shrank 55 percent in North America in 2008 and about 4 percent in Asia, the biggest consuming region, the following year, Barclays Capital estimates.

LNG shipping companies may also have their own vessel glut in coming years. Tankers on order rose to 55 compared with 25 at the end of January, data from Redhill, England-based IHS Fairplay show. Carriers ordered this year should be delivered in 2014 and 2015, according to Edinburgh-based Wood Mackenzie Ltd., an energy research company.

Golar, based in Hamilton, Bermuda, will report net income of $70.2 million this year, compared with $384,000 in 2010, according to the mean of 10 analysts’ estimates compiled by Bloomberg. Profit will jump to $159.9 million in 2012, a record, and $220 million in 2013, the estimates show. Shares of the company more than doubled this year in Oslo trading.

Teekay LNG Partners

Teekay LNG Partners, also based in Hamilton, will report a 2 percent gain in profit to $89.46 million in 2011, rising to $124.4 million in 2012 and $131.3 million in 2013, the mean of as many as five analyst estimates shows. Its shares fell 14 percent in New York trading since the start of January. The company gets 78 percent of its revenue from LNG carriers and the remainder from oil tankers, data compiled by Bloomberg show.

Frontline Ltd., the world’s biggest supertanker operator, will report a loss of $67.6 million this year, the worst since 1999, the mean of 20 estimates shows. Shares of the Hamilton- based company slumped 78 percent in Oslo trading. Just six out of its 80 vessels can carry anything other than oil or refined products, data on Frontline’s website show.

Demand for LNG is accelerating faster than energy analysts had anticipated, in part because of increasing consumption in Japan, which needs to replace nuclear power lost during the earthquake and tsunami in March. Barclays predicted in January that Asian demand would expand 1.7 percent this year. By May, it was anticipating growth of more than 11 percent.

LNG Japan

Global LNG demand grew 9 percent in the first half and 13 percent over the past 12 months, Bernstein Research said in an Aug. 29 report. Spare production capacity is likely to shrink to 26 million tons a year in 2011 and to 2 million by 2014.

Prices in Japan jumped 32 percent to $14.54 per million British thermal units in the first seven months of the year, according to the latest data from Tokyo-based LNG Japan Corp., a gas trading company.

Global natural-gas consumption may rise more than 50 percent by 2035, overtaking coal as the second-most-used fuel after oil, the Paris-based International Energy Agency said in a report in June. Natural gas emits about 50 percent less carbon dioxide than coal for the same amount of generated power.

“The LNG market has got the best supply-demand dynamics for an investor to look at in any shipping market,” said Urs Dur, an analyst at Lazard Capital Markets in New York. “It was beginning to get hot in 2008 and then we had the acute collapse of financing markets. New LNG liquefaction and regasification projects got kicked down the road at that time and that’s why we have all this extra production coming now.”

To contact the reporters on this story: Rob Sheridan in London at rsheridan6@bloomberg.net;

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net

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