Thursday, May 8, 2025

Latest

Natural Gas: Soaring European Prices Have Created An Eye-Popping Commodity Arbitrage

The quadrupling in European natural gas prices over the last 2 ½ months, coupled with a much smaller increase in U.S. gas prices over that period, has created one of the most compelling commodity arbitrage plays in some time. Seemingly daily news of further Russian supply curtailments has prompted European natural gas prices to reach the remarkable level of 339 euros per megawatt-hour, equivalent to approximately US$100 per thousand cubic feet (Mcf).

Source: Trading Economics.

The arbitrage is to buy natural gas in the U.S. (currently US$9.29 per Mcf at the key Henry Hub distribution point in Louisiana); liquefy it by cooling it to a liquid state at a temperature of negative 260 degrees Fahrenheit, thereby reducing its volume from a gas state by a factor of about 600 times; and ship it to Europe or Asia. On August 22, the landed prices of liquefied natural gas (LNG) in Europe and Asia were US$60 per Mcf and US$61 per Mcf, respectively, according to freightwaves.com. The prices are even higher today.

Per Flex LNG Ltd. (NYSE: FLNG), a shipper can realize a profit of a little more than US$200 million from selling a single shipload of LNG (containing 172,000 cubic meters, or about 6,074 Mcf, of LNG) to Europe or Asia after factoring in all costs, including shipping costs. Shipping costs for a vessel with that LNG capacity are currently around US$120,000 per day.

These rates were as high as US$250,000 per day last winter in anticipation of a potential Russian invasion of Ukraine; they fell to US$60,000 to US$70,000 in June 2022 when the Freeport LNG export facility in Texas exploded. Freeport, which represents about 20% of LNG export capacity in the U.S., is expected to return to partial service in November and full service in March 2023.

READ: Market Movers: Trillion Energy Continues To Climb As Black Sea Gas Drill Program Nears

A natural way to participate in the enormously profitable — and what may be long-lasting if the Russian-Ukraine war persists — LNG trade is through a leading LNG shipper like Cheniere Energy, Inc. (NYSE: LNG). Another way may be through owning a leading owner of LNG ships such as Flex LNG Ltd.

Flex owns 13 LNG ships, all of them contracted through at least mid-2024. The company earned US$2.84 per share in the twelve months ended June 30, 2022 and paid out US$3.50 in dividends (including a US$0.50 special dividend) over that period, equivalent to a dividend yield of just over 10%. Even after paying out these dividends, Flex still has nearly US$300 million of cash which represents around 15% of its stock market capitalization.

Flex stock has rallied about 40% since the June Freeport LNG plant explosion, so clearly the market realizes its strong fundamental position, in turn making it potentially susceptible to a stock market correction. Nevertheless, if European natural prices remain robust for some time, Flex could represent an interesting speculative play.  

Flex LNG Ltd. and Cheniere Energy, Inc. last traded at US$34.70 and US$167.76, respectively, on the NYSE.


Information for this briefing was found via Edgar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

Leave a Reply

Video Articles

Endeavour Mining Q1 Earnings: Cash Flow Is King

G Mining Oko West Feasibility: Move Fast, Break.. Nothing?

New Gold Q1 Earnings: What’s Behind The Market’s Surprising Reaction?

Recommended

Brazil Potash Secures Funding In Support Of US$2.5 Billion Autozales Project

Giant Mining Encounters Native Copper As Hole MHB-34 Hits 563 Metres Depth

Related News

Switzerland’s Proposed Gas Rationing Rules Will Fine, Jail Violators

Panic is beginning to set in over Europe’s worsening energy crisis, forcing countries to ration...

Thursday, September 8, 2022, 12:33:00 PM

Natural Gas Prices Collapse After A Dramatic 2022

U.S. natural gas prices have plummeted over the last month. The front-month (in this case,...

Sunday, January 15, 2023, 09:00:00 AM

Germany Gas Scenarios Show Nord Stream 1, Export Reduction Key To Avoid Shortage By December

Germany could be facing an empty national gas reserve by mid-December if it continues to...

Wednesday, June 29, 2022, 11:40:00 AM

Germany Gas Reserves Now At 91.3%, Ahead Of 95% Target By November 1

After reports circulated that Germany might miss its November 1 target of filling up 95%...

Tuesday, September 27, 2022, 01:44:00 PM

Natural Gas Futures Recede From Highs Amid Seasonally Warm Temperature Forecasts

Natural gas futures in the US slumped from their soaring highs on Wednesday, after weather...

Thursday, September 30, 2021, 10:11:00 AM