LNG Operators Are Finding That Size Matters

The Gastech 2014 Conference & Exhibition was held from March 24-27 at the Korea International Exhibition Center in Seoul. According to the Gulf Times, Alaa Abujbara had this to say:

Each year Qatargas has responded to market trends and signed new supply commitments. In recent years, we have participated in the commissioning of 12 new regasification terminals. We also signed several new long-term LNG supply contracts with Asian buyers in response to changing market conditions.
The more salient phrases being "new supply commitments," "12 new regasification terminals," and "several new long-term LNG supply contracts with Asian buyers." In other words Qatargas is positioning to be the first to enter new Asian markets with regasifaction tanks and long-term contracts.
 
But who is this man and why does the conference care about what he has to say? Abujbara is Qatargas' Chief Operating Officer of Commercial and Shipping, and Qatargas is the largest producer of LNG in the world. Among the company's major shareholders is ExxonMobil. Indeed, it is listed as one of 19 upstream activities in ExxonMobil's 10K. Other shareholders of Qatargas include: Total SA, ConocoPhillips, Royal Dutch Shell, and Cosmo Oil Co., Ltd. Naturally, what this company says carries sway as contractors, competitors, and municipalities listen for clues and insights on the direction of one of the industry's largest players, and to a larger extent on the direction of the industry itself. And, Abujbara is saying that LNG demand is on the rise which should translate into higher rates for operators.

Not all operators seeing higher rates
While Qatargas' Chief Operating Officer of Commercial and Shipping is optimistic, some LNG transportation operators may have cause for concern. Not all operators are going to be profitable this year, especially those with a large percentage of medium to larger size newbuild additions. Unlike StealthGas  (NASDAQ: GASS  ) and Navigator Gas (NYSE: NVGS  ) , Golar LNG Limited  (NASDAQ: GLNG  ) and Teekay LNG Partners have fleets with vessels that are predominately medium to large in size.

While Gaslog Ltd's  (NYSE: GLOG  ) revenues increased almost 170% in 2013, there's limited upside in the future, especially with regard to rates. Here's an excerpt from the Q4 earnings release:
During the fourth quarter of 2013 short-term rates for LNG carriers gradually decreased...A lack of available LNG cargoes in the Atlantic basin reduced demand for short-term LNG charters and more ships became available as newbuilds were delivered. This pressure on short-term rates is likely to continue into Q1 2014 as open newbuilds continue to be delivered at a faster pace than liquefaction projects come online.
Indeed, the deliveries of new gas tankers has created a glut in the market, except for certain under-served niches. The industry is moving at such a rapid rate that the size or type of vessel owned is more important than the size of the fleet.

But, this isn't the case with all operators. Navigator Gas is experiencing an increase in rates for its fleet, primarily because Navigator Gas has a concentration in smaller vessels. Here's an excerpt from the most recent Q4 earnings release:

During the fourth quarter of 2013, the average time charter equivalent rate across the entire fleet, including our fully refrigerated vessels was approximately $830,500 per calendar month ($27,300 per day), compared to $798,230 per calendar month ($26,243 per day) for the comparable period in 2012.
The company has 24 handysize vessels in its current fleet and an additional ten vessels on order. This is no mistake. NavigatorGas has been strategically focused on this segment of the market. Here's an excerpt from their website describing their fleet:
Navigator Gas is the largest operator and owner within the handysize 15-25,000cbm gas carrier segment. Our current fleet consists of 24 modern vessels with versatile capabilities including ethylene, semi-refrigerated and fully refrigerated units. An additional five 21,000cbm ethylene-capable and two 22,000cbm semi-refrigerated new-build vessels will be delivered during 2014 and 2015. 
The majority of Stealthgas' fleet is handysize as well, but even smaller than Navigator Gas' at ~5,000 cbm. Gaslog's vessels range from 150,000 cbm to 175,000 cbm in size. Golar's fleet is between 130,000 cbm and 160,000 cbm.
 
Qatargas pioneered the development of Q-Flex and Q-Max; a total of 32 vessels (19 Q-Flex and 13 Q-Max) have been built. The Q-Flex has a capacity of 210,000 cbm to 217,000 cbm, and the Q-Max can carry between 263,000 cbm to 266,000 cbm. These vessels are primarily built at three shipyards in South Korea: Hyundai Heavy Industries (HHI) at Ulsan, Samsung Heavy Industries (SHI) on Geoje Island, and Daewoo Shipbuilding & Marine Engineering (DSME) on Geoje Island.

Takeaway
One of the main differences between Navigator Gas and most other operators is the size of the average carrier in its fleet. As newbuilds get larger and the oldest -- and smallest -- LNG tankers in the market are scrapped, rates for handysize vehicles are going up. While there's a chance companies with larger size vessels in their fleet may be able to capture some of the new spot market liquefaction capacity as it comes online, I believe the market will be looking for companies like Navigator Gas and Stealthgas to provide the smaller vessels needed to compliment the existing chartered.

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