DNB analyse.
LNG SHIPPING SECTOR Focus on the US (1.9x the distance) The 2% decline in tonne-mile demand in the past five years explains the weak LNG shipping market, but US exports should mean tonne-miles now outgrow tonnes.
New LNG trade data suggests lower utilisation. Our new LNG data source (GIIGNL, previously Poten) suggests capacity utilisation of 71% for 2017e (81% in our September 2016 survey (2003–2016 range: 67–92%)). This corresponds well with the 3-year average TFDE spot rate of USD37k/day. While LNG trade rose by 10% in 2014–2016, we calculate unchanged tonne-mile as the average sailing distance fell by 9%. Sailing distances set to rise after a 4-year decline, due to US exports. We expect 7% longer average sailing distances by 2019e versus 2016 due to US exports. While we expect the US to account for 3% of global LNG exports in 2017e, it accounts for 47% of the 48% growth we forecast by 2020. We calculate that the US 2016 average export sailing distance was 1.9x the LNG market average, while US–northeast Asia was 3.8x.
Our survey suggests 38% more trade but 48% more tonne-miles in 2016–2019e. In this note we include our third annual liquefaction survey (covering c100 planned and operating projects), which we use to estimate LNG export growth. We expect LNG trade to grow 38%, from 264m tonnes in 2016 to 365m tonnes in 2019e (371m tonnes in our last survey). We calculate that LNG tonne-mile declined 2% in 2011–2016 and while 2016–2019e tonne-mile demand of 48% might sound optimistic, we consider it fair. Australia exported 100% of its LNG to the Far East in 2016 with an average sailing distance of 3,626 nautical miles, while the US had an average distance of 6,731 nautical miles or 1.9x the Australia figure, with only 20% of its exports to the Far East. Thus, if new Australian liquefaction volumes are delayed or restricted in 2018, we believe US tonne-mile would compensate. We expect tonne-mile demand growth of 13% for 2017 (previously 12%), 16% for 2018 (previously 14%), and 14% for 2019 (previously 8%).
Three-tier LNGC market has brought about updated rate forecasts. In this note, we introduce our MEGI spot rate forecasts of USD59k/day for 2018, USD75k/day for 2019, and USD93k/day for 2020. Adjusted for inefficiency costs, our TFDE spot rate forecasts are USD46k/day for 2018 (previously USD72k/day), USD62k/day for 2019 and USD78k/day for 2020 (latter two both introduced in this note).
2016–2019e fleet growth of 27%. We forecast fleet growth of 8.1% for 2017 (previously 7.3%), 9.9% for 2018 (previously 6.4%), 7.0% for 2019 and 4.6% for 2020 (latter two both introduced in this note).
We expect stable FSRU margins for the next few years based on 3–4 annual awards as we calculate eight open FSRUs until 2020 (four newbuilds, four contract roll-offs).
Recommendation and target price changes. We reiterate our BUY recommendations on FLEX LNG (target price cut to NOK14.7 (NOK17)), Golar LNG (target price cut to USD33 (USD36)), Höegh LNG Holdings (NOK112 target price unchanged), and Höegh LNG Partners (USD23.1 target unchanged). We reiterate our HOLD recommendation on Golar LNG Partners (target price cut to USD21 (USD23)). We have downgraded GasLog to HOLD (BUY) (target price raised to USD17.8 (USD16.2)).
EQUITY