Regardless of sliding world LNG costs over the previous a number of months, Flex LNG Ltd. administration mentioned heightened European and Asian costs in comparison with Henry Hub are anticipated to proceed driving U.S. infrastructure funding by way of the center of the last decade.
Throughout an earnings name Tuesday, CEO Oystein Kalleklev mentioned falling liquefied pure gasoline costs throughout the fourth quarter helped increase revenues and constitution curiosity as some patrons, notably in Asia, might afford to rejoin the market.
Kalleklev mentioned the continued slide at first of the yr might additionally result in a doable improve in gasoline demand throughout Europe, which is at the moment curbing power utilization to compensate for misplaced Russian pipeline gasoline. Fuel on the continent has turn into aggressive sufficient to enter “the territory of coal to pure gasoline switching” when together with the price of carbon permits in Europe.
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“The unfold between the pipeline gasoline costs and the LNG costs was near $30 and it’s come down now to $1 or $2, which is a extra regular market,” Kalleklev mentioned.
Nevertheless, LNG vessel proprietor Flex expects U.S. pure gasoline costs to take care of a “large” arbitrage in contrast with the Dutch Title Switch Facility (TTF) and Japan-Korea Marker (JKM) futures value by way of 2025. The agency expects Henry Hub costs to rise from beneath $3/MMBtu to round $5 by the center of the last decade. Throughout the identical time, Flex advised TTF and JKM might fluctuate above the $20 mark earlier than settling nearer to $15 within the subsequent two years as extra LNG capability comes on-line.
Kalleklev mentioned the worth distinction “will assist additional growth of U.S. export capability” and different North American tasks fed by U.S. shale gasoline. The market is anticipated to stay tight, he added, with little quick time period growth anticipated earlier than 2025, however the agency is getting ready to capitalize on an inflow of extra capability close to the tip of the last decade.
“Trying ahead, nonetheless, there are many new tasks coming to the market, particularly round 2025-2027, when, as I discussed, we’re advertising ships,” Kalleklev mentioned.
Within the quick time period, Flex is watching 4 U.S. tasks, all sited on the Gulf Coast, that might attain a last funding choice this yr. It highlighted NextDecade Corp.’s Rio Grande LNG and Sempra Infrastructure’s Port Arthur LNG tasks in Texas. It is also monitoring Enterprise International LNG Inc.’s CP2 venture and Vitality Switch LP’s Lake Charles LNG facility, each of that are proposed for Louisiana.
If sanctioned, all 4 tasks would add 66.2 million metric tons/yr of extra LNG capability by 2027.
Flex reported that america led the world in LNG cargo development in comparison with 2021 with a 9% improve in volumes. That’s regardless of Freeport LNG’s prolonged outage since June, which the agency estimated took 112 cargoes, or round 8 million tons, of LNG off the market throughout the yr.
Total, tonnage grew globally by 5%, whereas the shift of demand to Europe decreased common crusing distances.
The typical earnings from Flex LNG’s chartered vessels rose in 4Q2022 in comparison with 3Q2023 as LNG costs fell and Asian demand progressively returned. Companies like Flex LNG sometimes measure constitution incomes from completely different intervals utilizing the time constitution equal (TCE), which compares income and bills of a vessel chartered over a time frame towards that of a ship chartered for a number of voyages.
The TCE price jumped sequentially to $81,699/day in 4Q2022 from $75,941/day in 3Q2022. The speed nonetheless fell wanting the $95,908/day averaged within the year-ago interval. The total-year TCE price fell to $72,806/day in contrast with $74,536/day in 2021.
Flex LNG’s fleet grew to 13 carriers final yr, all of which have been booked for the whole lot of 2023. The agency mentioned 95% of 2024 has been coated by charters counting extension choices with purchasers. Its backlog for agency time charters grew to 60 years, or a doable 87 years together with all of its contract choices.
Throughout the fourth quarter, Flex signed extensions with Cheniere Vitality Inc.’s buying and selling unit for 3 vessels, preserving two of them beneath Cheniere’s management till presumably 2031.
Flex LNG reported web earnings of $41.4 million (78 cents/share) in 4Q2022, in contrast with year-ago income of $69.4 million ($1.31). Full-year web earnings was reported at $188 million ($3.53), in contrast with $162.2 million ($3.04) in 2021.