Liquified natural gas demand lifeline for tanker fleet

While demand for commodity shipping is starting to improve, the Guggenheim Shipping ETF (SEAquote) has taken a beating. Tanker fleets have also been battered by high fuel oil costs (USO, quote), but demand for liquified natural gas (UNG, quote) is helping make up the losses.

The high price of crude has both helped and hurt the tankers. They’re paying more for fuel, but the demand for natural gas has also been driven up. Since there are only so many tankers to go around, that demand is now testing the limits of the shipping supply.

Charter rates for tankers hit a peak of $145,500 a day in January, up from $30,000 a day just two years ago. New vessels are at least a year away, so charter prices have nowhere to go but up in the near-term.

Looking out into the medium-term demand for shipping is likely to outstrip the supply of tankers. Pareto Securities has forecast that demand for LNG vessels could double by 2020, resulting in a need for 352 more vessels. The next big increase in demand is likely to happen in 2016, when a new set of Australian projects come online.

Investors following natural gas should keep an eye on the Guggenheim Shipping ETF (SEA), which includes Mitsui O.S.K., Teekay LNG Partners (TGP, quote), and other key LNG shippers. 

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