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2 Major Reasons Why Natural Gas Could Save Shipping

http://www.fool.com/investing/general/2012/12/28/2-major-reasons-why-natural-gas-could-save-shippin.aspx

Jonathan Yates
December 28, 2012

Rising natural gas production in the United States could be the life preserver that the floundering global shipping industry needs. Due to the Great Recession, shippers are suffering from declining demand, falling charter rates, and higher prices for fuel oil. Here are two reasons why the fracking that is leading to greater natural gas production in the United States could save fleets around the globe from going under.

Increasing demand for shipping
The more natural gas produced, the cheaper it becomes. That basic truth of supply and demand makes natural gas much more attractive for countries around the world that must import fossil fuels to meet energy needs, such as Japan.

As part of this trade, for the first time, a tanker carrying liquefied natural gas is traversing the Arctic in a route from Norway to Japan. There will also be a greater demand for imported natural gas to produce electricity in Japan and Germany due to each country's commitment to do away with nuclear power.

A boost for the global economy
Declining economic activity around the world due to the Great Recession reduced the demand for shipping. That naturally resulted in charter rates falling to 10-year lows. The overbuilding that took place before the onslaught of the recession exacerbated the situation. These factors have contributed to collapsing sales and earnings per share, and accordingly bearish stock price performances for individual shipping companies, as shown in the table below:

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Metric

Frontline (NYSE: FRO)

DryShips (NASDAQ: DRYS)

Nordic American Tankers (NYSE: NAT)

Teekay Tankers (NYSE: TNK)

Ship Finance International (NYSE: SFL)*

5-Year EPS Growth Rate

(43.83%)

(64.46%)

(73.04%)

(55.61%)

(7.70%)

5-Year Sales Growth Rate

(12.26%)

34.11%

(11.59%)

(4.60%)

(7.02%)

Year-to-Date Stock Price Performance

(16.78%)

(12.00%)

(16.54%)

(0.94%)

92.00%