Biggest Hedge Fund in Ships Sees Frozen Gas Beating Oil
Comment of the Day

January 03 2012

Commentary by Eoin Treacy

Biggest Hedge Fund in Ships Sees Frozen Gas Beating Oil

This article by Alaric Nightingale for Bloomberg may be of interest to subscribers. Here is a section:
Golar controls more than 25 percent of the available vessel supply over the next three years, according to Morgan Stanley.

The Hamilton, Bermuda-based company will report net income of $168.1 million for this year, compared with a predicted $70.7 million for 2011, the mean of 12 analyst estimates shows. Its shares almost tripled to 263.8 kroner last year in Oslo trading and will reach 283.05 kroner in the next 12 months, according to the average of 10 analyst estimates.

Teekay LNG Partners will report profit of $107.9 million for 2012, compared with a projected $83.9 million last year, the mean of four estimates shows. Shares of the Nassau, Bahamas- based company fell 13 percent to $33.17 in New York trading in 2011 and will reach $38.20 in 12 months, the average of five estimates shows.

Natural gas's share of global energy demand will climb to 23 percent by 2035 from 21 percent now as oil's contribution declines to 27 percent from 33 percent, according to the Paris- based International Energy Agency. LNG is contributing to the gain because it links consumers with producers that may be too far apart to connect by pipeline. Qatar, the biggest LNG supplier, is about 5,000 miles from Japan.


For shipping companies, stronger LNG demand echoes what happened when oil started displacing coal as an energy source in the first half of the 20th century, said Vergottis, whose family has owned ships for four centuries. That shift took oil tankers from a niche vessel class to the dominant type in energy transportation by the 1970s, he said.

“The same is happening with LNG,” Vergottis said. “LNG is earning a 25 percent return on capital. A tanker is earning minus three. LNG is the growth part of the market.”

Eoin Treacy's view Natural gas is, currently, the only realistic potential alternative to oil and offers an invaluable bridge until true renewable alternatives; capable of producing abundant, reliable and cheap energy are developed. The global sea transportation network for natural gas can still be considered in an early stage of development. It is reasonable to expect considerably more import/export terminals and LNG tankers to be built over the coming decades.

At present the LNG tanker market is dominated by a small number of companies. Their oligopoly depends on the lag between demand rising and the lead time for new ships to be built by competitors. This would suggest that companies such as Golar, Teekay LNG and Exmar have another couple of years before they experience significant competition. (Also see Comment of the Day on December 16th).

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