wpdev, Author at Webber Research

Webber Research: Hydrogen Tracker

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• Recent News (page 1)
• LH2 Carrier Progress (page 3)
• M&A Tracker (page 4)
• Valuation Summaries (page 5)
• Hydrogen Production Costs (page 7)
• Industry Dynamics (page 9)

  • PLUG Launches GenSure HP Platform
  • Linde Signs MOU For Hydrogen Mobility At 2022 Winter Olympics
  • Hyperion Set To Unveil XP-1 In August
  • US DOE Announces $11.5MM In Funding For CCS
  • Air Liquide Opens Hydrogen Fueling Station In Japan
  • McPhy Selected For Unnamed Fueling Station Project
  • Keeping Tabs On The World’s First Liquefied Hydrogen (LH2) Carrier:
    • Future Supply Chain Dynamics
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OPEC+ Fallout: Contagion Everywhere From Looming Price War…

***From Sunday 3/8***

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Tankers Among Few Eventual Beneficiaries

  • Impact On Tankers:                                                                                     Page 1, 3-5
  • The 2015 Tanker Comp, Similarities, Implied Upside                         Pages 3-4
  • Impact On LNG Developers (LNG, TELL, NEXT, GLNG, NFE)            Pages 2-3
  • Historical & Implied Equity Correlations To Crude Vol                       Page 3
  • NAVs: Current, Mid-Cycle to Trough Range                                          Page 3
  • OPEC+ Background                                                                                   Page 3, 6

This Is Going To Hurt: On Friday (3/6) talks between OPEC and its OPEC+ allies (Russia) over a corona-related production cut collapsed, sending oil prices down with it (Brent and WTI down 9% and 10%, respectively on Friday). While the lack of OPEC+ support for crude prices was enough to rattle markets, what’s transpired since – the relationship between the Saudis and the Russians rapidly devolving into what looks like an all-out pricing war – has the potential to reshape energy markets for years to come, and will likely take the mantle as the most value-destructive policy shift in decades.

Exogenous Demand Shock, Meet Exogenous Supply Shock. As noted below, Aramco has already come out with discounted crude prices (OSPs) on the back of the meeting, and is reportedly speaking to a potential production ramp from its current 9.7mbd, to well above 10mbd, and could even reach a record of 12mbd. Again – that would be additional supply into a market that’s already oversupplied amid global efforts to contain the Coronavirus (nCoV) weighing on demand. While the Russians have less available swing production, what they do have will be moving in the wrong direction as well, as they look to grab share from U.S. Shale producers.

How Does This Impact Our Universe:
Tankers: We’ll Call It Mixed… (And That’s One Of The Few Bright Spots). Once the dust settles the tanker group, including FRO, DHT, EURN, ASC, etc, should be one of the few actual overproduction beneficiaries as: 1) tanker activity and rates are generally positively levered to production volumes (including overproduction), and 2) we expect to see floating storage, both economic (as the front end of the crude forward curve collapses (already in progress) and…….continued on Pages 3-5

Most Relevant Tanker Comp: 2015, after OPEC failed to respond to falling crude prices. While overcapacity and falling crude prices ravaged the rest of the energy markets, Crude Tanker rates (VLCCs) averaged $65K/day (Figure 4) – a level not reached since 2008, up 116% y/y and the firmest level in nearly a decade. What would 2015 day rates mean for current tanker stocks? If we replaced our current 2020 rate decks with the 2015 average rates….continued on page Pages 2-3

Everything Stops. If nCoV brought the near-term prospects of new LNG business to a particularly slow crawl, we believe the OPEC+ blow up will bring it to a full stop, at least until the dust settles. For companies in the process of restructuring (like TELL).….continued on Pages 2-3

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Noisy Neighbors: A Commonwealth LNG Deep Dive & Venture Global’s Engineering Update

Energy EPC: Venture Global’s Engineering Update & A Detailed Look At Their Commonwealth LNG

Note 1: As expected (and highlighted in our Commonwealth LNG Report below – initially published nearly two weeks ago), Venture Global has filed motion to intervene in Commonwealth’s project development due to its planned activity and dredging in the Calcasieu Ship Channel. We’ll continue to monitor.

Note 2: Over the next few weeks we’ll be rolling out a new line of Energy EPC research, centered around the unique and insightful analysis of EPC Risks. Please let us know if you have any questions, and we’re excited to share more details soon!***

Commonwealth LNG (CWLNG) is a proposed 8.4 MTPA LNG export facility located on a 393-acre site in Cameron Parish, Louisiana. The Project is on the west side of the Calcasieu Ship Channel (“the Channel”) near the entrance of where the Channel spills into the US Gulf of Mexico. The Project is also located directly across the river from Venture Global LNG’s (“VGLNG”) 10.0 MTPA Calcasieu Pass LNG (CPLNG) export facility (Figure 1).

In the 20-pages that follow, we’ve analyzed the CWLNG project and how the Project’s boundaries and shipping operations may be an issue for CPLNG, the State of Louisiana, and the U.S. Coast Guard. (Webber note: again – VG filed a motion to intervene after this piece originally went to clients in late February) 

CWLNG’s execution plan is based upon modularizing the LNG process and pre-treatment units as well as the LNG storage tanks. Typically, a full containment 160,000 m3 LNG storage tank takes 36 to 42 months to construct and commission. CWLNG has proposed modularizing six (6) 40,000 m3 single containment LNG tanks…(continued pages 2-22)

Venture Global LNG: Calcasieu Pass Engineering Update – Details, Background, & Key Questions

Key Points:

  • CPLNG’s engineering, procurement, and construction workflow/ sequencing is not following “traditional” EPC industry standards. (Pages 2-3)
  • It’s too early to tell if that differentiated sequencing has helped expedite the project or if procurement and construction activities will be impacted in later stages. (Page 3-4)
  • CPLNG’s recent engineering filings point to significant, relatively late-stage engineering changes (at least by historical standards) that warrant monitoring from a cost and timeline perspective. (analysis on Pages 4-6)

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Venture Global LNG: Costs Ramping At Calcasieu?

Headcount, Parking Data Suggest Material EPC Inflation

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  • Construction Details:                                                           Pages 1-2
  • Parking & Headcount estimates                                        Pages 2-3
  • Previous CPLNG Cost Curve                                               Page 3
  • Our New CPLNG Labor Cost Estimates                           Page 3 
  • EPC Costs – Expanded                                                         Page 4
  • Key Questions From Here                                                   Pages 4-5

Forcasted Ramp In Craft Labor Headcount Indicate Costs Likely Trending Above Plan. Recent filings indicate that Calcasieu Pass LNG’s (CPLNG) average on-site workforce is set to more than double compared to company Pre-FID plans, while also introducing a night-shift. While there are likely several variables in play here, we believe the data (analyzed in the pages that follow), suggests that CPLNG’s on-site craft labor costs could increase materially……(data and our estimates on pages 2-5).

Parking Lot Infrastructure: In addition to the craft labor increases, there’s usually an increase in both indirect construction support infrastructure and the associated cost for that infrastructure. An example of this phenomenon is the reported increases by CPLNG in parking lot infrastructure. While not usually top-of-mind, ancillary factors like parking carry a real cost for projects this large, and significant increase in parking requirements would be felt in a projects budget. This same correlation is true for other indirect costs like lunch tents, lavatories, office spaces, personal protective equipment, health & safety supervision, small tools and consumables, radios and other IT equipment, trash removal, security, craft training, and on and on. That trend in data over the past year shows….(continued on pages 2-3).

While there could be several explanations for the ramp in labor (too many to list within a single note), if we were stakeholders we’d want to understand what’s actually driving the ramp in labor, and how any associated overrun in direct and indirect costs are being accounted for by CPLNG. While our cost overrun estimate (pages 2-3) is just that – an estimate – we’re confident the
fundamental relationship between labor head count and project costs have us pointed in the right direction.
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LNG’s Black Friday

LNG’s Black Friday: Endgame For TELL,
Magnolia (LNG-ASX) Gets Taken Out

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The Walls Close In Around TELL – Stock Down 72% This Week As Liquidity & Commercial Realities Finally Overlap. TELL has traded down 52% today, as continued commercial slippage, mounting liquidity concerns, and the broader market de-risking have combined to price-in the new economic reality for Tellurian: It’s not going to make it. The week started off with proponents of TELL/Driftwood wondering whether another presidential photo-op and some interim Petronet commercial progress could be stretched into an event meaningful enough to support a TELL capital raise and runway extension. It was a thin premise to begin with, and the list of plausible alternatives was already getting shorter. We believe what followed – first silence, then Petronet seemingly downsizing to a 1.0mtpa competitive tender, then an extension of the original Petronet MOU which brought TELL’s next maturity into play – was effectively the latest in a string of “the emperor has no clothes” moments for the remaining TELL bull thesis. It just happened to coincide with one of the steepest market corrections in recent history. See Pages 2-4 for more detail.

LNG Ltd. (Magnolia LNG) Magnolia LNG Developer Likely Going Private In $75MM Takeover Deal: We’ve suspended our coverage and estimates for LNG Ltd. On 2/28, Liquefied Natural Gas
Limited (ASX: LNG, US ADR: LNGLY) halted trading as it entered into a bid implementation agreement (BIA – Figure 2) with LNG9 PTE Ltd. Under Australian law, the bidder (LNG9) needs to get to 90% to force full consolidation, with options to get there if it doesn’t initially hit that hurdle. LNG9 will make an off-market takeover bid to acquire all issued ordinary shares of LNGL and take the company private (offer to shareholders to commence on April 2 and close on May 3). According to management the deal comes after a very thorough vetting of the market. Stonepeak also seems…See Pages 4-6 for more detail. 

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The Golar Clean Up Trade – Let’s Get Schwifty

Golar Q4 Earnings Preview – Reorg Pressure Ramps


GLNG/GMLP Equity Thesis, SOTP Valuation:                Pages 1-2, 6
Our Expected Golar Reorg Solution:                              Pages 2-4
GMLP: Risk around Eskimo/Jordan Contract?              Pages 2, 7
DCF-Based LNG Carrier Asset Curve:                             Page 5
Asset Level Leverage, Est. Market Values:                     Page 7
Golar Power Updates:                                                        Pages 4, 8

Expectations For Golar Q4 Earnings: Heading into GLNG & GMLP’s Q4 earnings report on Tuesday (2/25), our primary focus is on (1) the timing, scope, and structure of a potential reorganization of Golar’s corporate structure – with our detailed expectations below. This includes a spin of its downstream business (Golar Power), the ultimate placement of its LNG carrier fleet, and what to do with GMLP (34% yield), (2) we expect GLNG metrics (adjusted EBITDA) to be roughly inline for Q4, and (3) the ramping risk profile of GMLP – particularly around its role in a reorg, its credibility as a currency, and (potentially) the quietly rising risk around the Eskimo FSRU contract (page 3).

*It’s worth noting that the GLNG/GMLP Q4 earnings call is endearingly scheduled to overlap with Cheniere’s (LNG, CQP), so street bandwidth may be a bit stretched, at least to the extent that if the reported numbers are a mess, the impact of clarifying (or pacifying) comments from a 10AM earnings call may be bit dampened. To be fair, we guess the reverse is also true. Should be fun.

Getting Constructive On GLNG. The pressure on Golar to reorganize its complex structure has only grown – punctuated by Luxor filing as an activist stakeholder in late January (8% holders). We think Golar likely moves to clean up its structure in the next 6 months, particularly as some of its earlier options (spinning off its LNG carrier fleet with 3rd party involvement) are likely off the table, and more controlled, in-house solutions seem more viable. We run through our expectations on pages 2-4, but here’s the punchline: We’d be long GLNG, and short GMLP in a reorg.

GMLP: Ramping Risk Around The Eskimo FSRU? The Eskimo is one of GMLP’s core assets (~$40MM of EBITDA), and is about to hit the 5-year mark on its 10-year contract with Jordan in May 2020. While it’s typically highlighted as a fixed 10-year contract, there’s actually an out in the Eskimo contract…(Page 2, 8)

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LNG Update: Coronavirus Force Majeure — Context, Data, and Exposure

Corona-Related Force Majeure: Highlights From Our Recent LNG Update

  • Chinese LNG Contractual Exposure – SPA Breakdown By Counterparty                          Pages 2, 5-9
  • Historical Context – SARS, 6 Previous Global Health Emergencies                                    Page 2
  • NT Flash Points – 16 LNG Carriers Set To Call In China, Details                                           Page 3
  • Logistical Headwinds – Trucked LNG Data, Breakdown                                                        Pages 4-5     
  • Force Majeure Language Cheniere (LNG)                                                                             Pages 10-12           

Coronavirus Puts Force Majeure In Play For Chinese Contracts: After days of speculation that Chinese LNG importers (CNOOC, Sinopec, CNPC) were considering invoking contractual force majeure clauses in their LNG contracts, CNOOC (China’s largest LNG importer – Figure 1) announced it had issued force majeure notices to their suppliers due to fallout from the coronavirus (nCoV). Total has reportedly rejected CNOOC’s notice of force majeure, setting up what we expect to be a continued string of notices and conflicting rhetoric, as the relatively opaque process plays out in a weakened and nervous LNG market, and amid the Q419 earnings cycle. While the ultimate impact of these contractual disputes is unclear – ranging from timeline delays (EPC), non-payment, and beyond — what does seem clear is that the issue should continue to build. As noted in Figure 3 – there are 16 LNG vessels scheduled to discharge in China over the next 5 business days, and we’d expect additional contractual flash points ahead.

Validity To Be Determined. We hope to get more clarity on the validity of force majeure claims in the coming days — particularly as they pertain to DES (fixed destination) and FOB cargos (flexible destinations — like Cheniere’s) which can be diverted to unaffected markets. We would think it’s less likely Cheniere’s FOB cargoes would be impacted by force majeure issues at the geographical origin of the original purchaser, given their inherent flexibility.

More Than Just A Demand Headwind In China. It’s also worth noting that Corona issues go beyond simply demand destruction within the Chinese market. Given pipeline infrastructure limitations in China, significant volumes of LNG are trucked to end users (Figures 4 & 5), which also brings logistical issues to the forefront, as there’s likely a similar lag in LNG truck drivers returning to work as those in factories and mills following the Lunar New Year holiday and quarantine efforts by the Chinese government. The risks also expand beyond volume-based LNG contracts, with shipyards, hard-asset delay schedules and tangential energy infrastructure also potentially impacted. Late yesterday gas producer Energean noted TechnipFMC had claimed corona-related force majeure on a FPSO meant for an Israeli offshore project

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Webber R|A Barge Week- Part 2: The M&A Menu


Barge Week Continues at Webber R|A with our Barge M&A Menu, out yesterday.

The Barge M&A Menu: Assessing 2020 Consolidation Options includes:

• The Elephant In The Room – Inland Special Situations (Page 2-3)
• High Profile Coastal Distress (Pages 4-5)
• Strategic Pivots Into Ancillary Sectors (Marine Services & Bunkering)? (Pages 6-9)
• Fleet & Company Details, & Our View On Viability & Timing

Laying Out KEX’s M&A Menu: We expect M&A to remain a major theme for KEX in 2020, particularly with several high-profile, ongoing distressed situations in the barge space (Bouchard, ACBL, Harley Marine, etc.). While there’s no shortage of opportunities for KEX to continue acting as the sector’s primary consolidator, the makeup of viable targets looks increasingly diverse. Despite the headlines, the number of traditional M&A opportunities within KEX’s core inland business are actually getting fewer and further between, while distress builds in
pockets of the tangential coastal market (Bouchard ) and the Marine Service & Bunkering markets (Harley Marine, potentially Vane Brothers). We take a look at those scenarios in the pages that follow.

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It’s Barge Week At Webber R|A!

KEX: Previewing Q419 Earnings & 2020 Guidance

  • Inland & Coastal Color:                                                                  Page 3-4
  • Inland Spot & Term Pricing Data (Current/Historical):            Page 5
  • Inland Barge Orderbook & Delivery Schedule:                        Page 6

Heading into KEX’s Q4 earnings call (1/30) we expect a focus on: (more…)

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Highlights From Webber R|A Call Series

LNG Project Risks: Tellurian, Venture Global, LNG Canada, Golden Pass

North American EPC Updates: Last week we brought back our Vertical LNG Conference Call Series with guest Eric Smith of EPC Risks to run though updates on construction timelines for a number of North American LNG projects, including TELL’s Driftwood LNG, Venture Global’s Calcasieu Pass, Shell’s LNG Canada, and Exxon/Qatar’s Golden Pass, highlighting any slippage and digging into the long-term impact. During the call we also covered what a typical EPC progression schedule should look like (Figure 2), how some firms might report progress that could be misinterpreted (FLR), and how (1) Driftwood & PGAP filing/timeline discrepancies could create another hurdle for TELL, and (2) how Venture Global’s limited pre-FID engineering spend may have already pushed back the Calcasieu timeline.

Relevant Companies/Stocks: Kinder Morgan (KMI), Sempra LNG (SRE), Tellurian (TELL), NextDecade (NEXT), McDermott (MDR), ExxonMobil (XOM), Royal Dutch Shell (RDS), Baker Hughes (BKR), Fluor (FLR), Chiyoda (6366), Venture Global LNG (Private).

Venture Global’s Calcasieu Pass – Estimating Potential Timeline Slippage & Cost Impact. Discrepancies with baseline scheduling models seem to have started in October (although aspects of the modular design make this a bit hazy), highlighted by delayed engineering documentation (Page 2). Total estimated delay and underlying components are on Page 3, with cost estimates/overages on Page 4.

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Tankers: 2020 Starts With A Bang

IMO 2020 Update: Scrubber Premiums Widen. Scrubber fitted vessels continue to command significant premiums as the clock effectively rolls to 2020 and the new IMO 2020 fuel regulations officially kick-in. Scrubber installed VLCCs are earnings $17k/day (~15%) more than non-scrubber fitted peers in the spot market (Suezmax +$11k/day, LR2 +$10k/day, and MR +$6k/day). Since December 1, pro-scrubber tanker names like FRO (scrubbers on ~1/3 of its fleet) and DHT (scrubbers on ~60% of its fleet) have traded up ~20%, respectively, slightly outpacing  peers like EURN (up 16%). It’s still early, and we’ll be watching for any material divergences in equity performance, and whether the market rewards what effectively amounts to TCE alpha.

Fuel Spreads Continue To Widen. Fuel spreads remained relatively wide last week with the VLSFO/HSFO spread at $324/mt in Singapore, and $283/mt in Rotterdam, MGO/HSFO spread at $320/mt in Singapore, and $306/mt in Rotterdam. Notably, the ramp in demand for MGO in Singapore drove the MGO/VLSFO spread to below zero, -$4/mt, but stayed in positive territory in Rotterdam at $23/mt (its worth note data behind that particular spread is relatively thin). At ~$300-$325/mt, current fuel spreads continue to put scrubber investments firmly in the money.

***We have a note on today on the Iranian missile strike and the impact on LNG & Tankers, which we pay post next week. The text below is dated a day prior to the attack (although we think it provides interesting context in retrospect***

U.S./Iran Tensions Rachet Up: Overnight the US On 12/30, U.S. State Department officials said the “maximum pressure campaign on Iran” will intensify in 2020, without mention of which companies or sectors, and when they might be impacted. A senior State Department official added ~1,000 individuals and entities with links to Iran have received sanctions, with the latest round of sanctions targeting companies that have taken cargo from Iran, (most notably, subsidiaries of Cosco Shipping Energy Transportation that sent rates to all high times this past October). According to Iran, U.S. sanctions have cost the country $200B in lost foreign income and investment over the past two years (not exactly a GAAP measure, certainly gets the point across).

We’ll be watching 1) the impact on the Iranian (NITC) tanker fleet, including whether existing tonnage is pushed further to the sidelines, and 2) whether any conflict (economic or otherwise) spills into the Strait of Hormuz, which is an international choke point for LNG, crude and refined product.

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LNG Update: USG Pricing Color & Mubadala Builds Its NEXT Stake

Updated Pricing Color For U.S. Developers: Cheniere, Shell, Venture Global, Next Decade, Freeport, Annova, Commonwealth, Delfin & More. Over the past week we’ve had several conversations with LNG buyers, project developers, and downstream operators, with the more pertinent color below:

LNG Pricing Currently Being Offered In The USG:
Consensus Range: $2.25–2.40/mmbtuIndividual Developer Pricing Details On Page 2
Outlier: $2.10-2.20/mmbtu Individual Developer Pricing Details On Page 2
Outlier: Offering ~$1.75/mmbtu Individual Developer Pricing Details On Page 2

Favored Projects: Buyer With Some Effective Baseload Exposure – In the U.S. only really considering a handful of projects (page 2),  however, Qatar is the most likely – and buyer has option to pull from Ras Laffan or Golden Pass. Webber Note: the optionality here provides another window into how Qatar is marketing their entire ~100mtpa portfolio.

Venture Global: At least 2 buyers in Calcasieu potentially going back for more LNG in Plaquemines, site visits are still ongoing (page 3).

Project Roll Ups: One buyer speculated we’ll see some of the 3rd and 4th tier Greenfield projects get rolled up in 2020, as existing players look for cheaper growth optionality and early stage projects solve for funding issues. Webber Note: we agree, and think it could start in the next quarter or two, with a Brownfield or well-funded player consolidating some pre-FEED or pre-FERC powerpoint projects.

Mubadala Builds NEXT Equity Position: On 12/12, NEXT filed a shelf registration for 10.1MM shares, controlled by Mubadala Investment Company (Mubadala) – 8.0MM of which were issued to Mubadala on 10/24 (at $6.27/share) and 2.1MM of which Mubadala acquired from another shareholder (we believe BKR). While the stock traded off 4% as the registration headlines spooked the market a bit (unfortunately, a relatively predictable outcome, even for a maintenance filing), the stock regained the lost ground relatively quickly. We view the BKR sale (via BHGE) as mostly a post-spin cleanup effort, with at least  read through here that Mubadala likely wanted more equity than NEXT was willing to issue on a primary basis.

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LNG Update: Frozen 3? Funding Hot Potato For Novatek’s Arctic 2

Keeping An Eye On Budgeting Process For Arctic 2

Who Picks Up The Check For Arctic 2? The timeline for Novatek’s high-profile Arctic LNG 2 (19.8mpta) may have hit a modest speedbump, as the ~$1.9BN request to help finance critical aspects of Arctic 2 [the Utrenneye LNG terminal on Gydan peninsula (page 4), and reloading terminals in Murmansk (for European cargoes) and Kamchatka (for Asia cargoes)] are absent from Russia’s 2020 draft budget. While the project has already reached a positive FID, and is clearly a national priority – we think it’s worth watching whether any squabble over the ultimate funding source ends up delaying its operational timeline (which is already ambitious). The primary options appeared to be (1) the state budget (now absent), or (2) funding from the ~$124B National Wealth Fund, which appears to be a more complicated….

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GLNG: Tangled Structure Clouds Golar Power Growth

Golar Treading Water Post Q3 Earnings. GLNG traded up ~1% late last week after posting relatively tepid Q3 results, regaining some early lost-ground following a disappointing headline number (below). While we continue to think GLNG looks washed out here ( ~0.7x our NAVe), we think a positive mean reversion remains dependent on Golar eventually simplifying their structure – a long-delayed process that could now kick off in H120. We hope…

Golar’s LNG Carrier Spin Entering Chinese Democracy territory. GLNG’s long-awaited LNG Carrier spin (the likely first step toward simplification) has officially been delayed to 2020 after the partnership structure between Golar and other participating owners collapsed – we believe Awilco & Cardiff Gas (at least at one point). As you may recall, we noted that Cardiff Gas had been marketing their PE-backed, on-the-water fleet separately since the early fall, which we viewed as a solid indicator that the potential consortium was in trouble.

Golar will now look to spin-off its LNG carrier fleet via a direct U.S. listing of the GLNG-only vessels, which is now set for 2020 (presumably H1). The perpetually sliding time frame has become a headwind for the stock, and an obstacle for simplifying the Golar structure. While the softer 2019 market has a lot to do with that delay, we think the clock is starting to tick pretty loudly at this point when it comes to GLNG executing a spin without taking a meaningful loss…

Spin Logistics. Our primary question/concern at this point revolves around how levered……

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Webber R|A: Vertical LNG Weekly

FERC Approves 4 Texas LNG Projects: On 11/21 The Federal Energy Regulatory Commission (FERC) voted in favor (2-1) of all three Brownsville LNG export terminals (below), along with Cheniere’s CC Stage – 3 expansion – granting all 4 projects final approval. Among those approved:

NextDecade’s (NEXT) Rio Grande LNG (~27 mtpa)
Annova LNG Brownsville (~7 mtpa)
Texas LNG Brownsville (~4 mtpa)
Cheniere’s (LNG) CC Stage – 3 expansion (~9.5 mtpa)

The approvals made meaningful progress for the projects, and come amid an uptick in local environmental pushback in Brownsville. While FERC approval is certainly helpful, all 4 projects still require meaningful commercialization targets to reach positive FID. We remain buyers of LNG and NEXT, as we view the Texas coast as the path of least resistance for associated Permian gas to reach the international markets.

Creating A Residual Value Floor: It’s also worth noting that we think the combination of an advantaged location and FERC approval effect helps create a meaningful asset and (to some degree) a valuation floor for the respective development companies. While we think the idea FERC/Site asset would have most of its practical relevance in a distressed scenario, we think its meaningful none-the-less, and not something we feel would be equal among projects (due to proximity advantages to the Permian).

European Investment Bank (EIB) Announces Phase Out Of Fossil Fuel Lending: Roughly two weeks before the 25th session of the Conference of the Parties (COP 25), the European Investment Bank (EIB), EU’s nonprofit long-term lending institution, announced it would (effectively) stop lending to fossil fuel projects, via particularly tight environmental guidelines. While the move is another meaningful step towards the de-carbonization of Europe, the immediate impact on LNG infrastructure is highly muted. For scale, the EIB lent out ~€11.8BN between 2013 and 2017, compared to JPM financing ~$62.7BN in 2018 alone. It’s also worth noting that the EIB can choose how they define alignment to the Paris Agreement, while others (World Bank, EBRD, Asian Development Bank, etc.) can choose different interpretations, and these institutions will still be able to finance midstream/downstream gas and gas-fired projects. On a more granular basis, most demand (and incremental lending) for natural gas projects now comes from non-European markets. Which typically has access to wider pockets of capital. For example, Mitsui recently invested in a major gas-fired power plant in Thailand, with financing provided by the Japan Bank for International Cooperation. Hence, we think the EIB move is material in the sense of sector leadership, but we aren’t expecting a dramatic market impact, at least at this point. Other notable takeaways from the EIB announcement: …….

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Webber Research: Global Shipping Weekly

Russia May Delay IMO 2020 Compliance:

Russia, a large producer and exporter of high sulfur fuel oil, intends to delay full implementation of IMO 2020 regulations until 2024. This will only be in effect within local waters (including Belarus, Kazakhstan, Armenia and Kyrgyzstan). Despite investments in Russian refineries, only one Russian oil producer (Lukoil), has the ability to produce fuel that complies with IMO 2020 standards. It’s worth noting that, IMO regulation enforcement falls on Russia, not the IMO itself. While there are audit mechanisms for corrective action plans, there are no punitive measures for violations. Earlier this year, Indonesia also flirted with the idea of not enforcing IMO requirements, but later backtracked and pledged commitment to the IMO 2020 standards.

Tanker Spot Rates Continue To Slide:

VLCC spot rates (TCEs) down last week with rates ending at $54.8k/day (-23% w/w and -81% m/m). Suezmax TCEs ended the week at $39.0k/day (-28% w/w and -76% m/m) while Aframax rates ended the week at $21.5k/day (-23% w/w and -63% m/m). As the market digested the chaotic past few weeks, owners are starting to temper expectations with freight rates and have been giving up gains. We note rates remain well-above mid-cycle levels.

IMO 2020 Update:

Earlier this week EURN signed a partnership with T.A.G. Marine, operator of Kuala Linggi International Port (KLIP), that will allow EURN’s ULCC Oceania to float and

Contact us at [email protected] for access details

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Sempra LNG's Cameron Facility

LNG Update: Shut-In Cargo At Sempra LNG’s Cameron T1 – How A Freight Fiasco & Narrow Arb Killed A Cargo

First USG Cargo (Technically) Shut-In, After Pavilion Fails To Lift. We believe one of the first LNG cargoes from Sempra’s Cameron LNG T-1 was technically shut-in, after Pavilion Energy (via Mitsui) effectively chose to eat the liquefaction fee while failing to lift the cargo. To our knowledge his marks the first USG LNG cargo to fail in this manner – with a mismanaged freight book and narrower arbitrage being the primary drivers.

We run through the details below in our note, but here are our quick takeaways:

  1. While this fits a broader “tight/closed arbs will lead to USG LNG shut-ins” narrative, this has as much to do with freight mismanagement (at the customer level) as softer LNG prices.
  2. It highlights the amplified importance of freight within the LNG value chain. As we stand today, freight costs equate to ~40% of LNG cargo value.
  3. To be clear – we believe Sempra LNG (SRE) got paid – we’re not viewing this as an indictment of the exporter model or the start of a hyper-bearish trend – but we do think it’s a warning shot that shows how delicate the economic balance can be for some merchant and committed volumes alike.

Meanwhile Cheniere Is Playing Chess, Not Checkers. At roughly the same time as hyper-expensive LNG Carrier rates helped drive the first LNG cargo failure elsewhere in the USG, we think Cheniere could actually start turning generating some significant cash (details in note) with its freight book. Cheniere (LNG) currently controls ~25 vessels (details in note) – intuitively getting long freight into peak season, rather than getting cute – and according to our channels started actively looking to charter-out 6 of those vessels this week – i.e. taking excess swing capacity they secured at/near mid-cycle…

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Cheniere - Getting ahead of Q319 Earnings

Cheniere: Previewing Q319 Earnings

Cheniere – Getting Ahead Of LNG/CQP Q319 Earnings…

Earlier this week we put our deep dive into Cheniere’s Q319 results (LNG/CQP), with a focus on
1) Narrow export arbs and the impact on CMI margins
2) A look at early peak season and floating storage/global inventories
3) Brookfield’s 25% investment in Cove Point and the valuation implications for CQP/Blackstone
4) Commercialization progress for Cheniere’s next growth phase: CC-3
5) Updated SOTP valuation for LNG – broken down by train, and SPA…

10 pages of pre-earnings LNG fun…

Email us at [email protected] if you’d like access!

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‘More than enough on their plate’: Latest Sempra LNG deal adds to export backlog


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Webber R|A Call Series: EPC Risks – KMI’s New Elba Island LNG Timeline Likely Slips Materially

Highlights From Webber R|A Conference Call Series W/ EPC Risks CEO, Eric Smith

Diving Into EPC Risk:

Friday we hosted Eric Smith, CEO of EPC Risks for our inaugural Webber R|A LNG Conference Call Series – which we think was particularly timely as the market gradually shifts more of its focus from the binary event-risk (FID risk) that has largely defined the LNG cycle for the past 2 years, and toward LNG project construction/execution risks (EPC risks). Our call with EPC Risks CEO Eric Smith focused on the issues they’re seeing in certain timelines over the near-term (KMI’s Elba Island), the impact that restructuring headwinds (McDermott) can have on project timelines (Cameron LNG/SRE), and the viability of low-cost models like Venture Global’s Calcasieu Pass.

Among the major takeaways:

according to EPC Risks, there’s a zero percent (0%) chance that KMI hit’s the Elba Island timeline they highlighted on their earnings call last week (i.e. – 3 more units in place this year, remaining 6 within H210).

Relevant Companies/Stocks:

Kinder Morgan (KMI), Sempra LNG (SRE), Cheniere (LNG, CQP), Tellurian (TELL), NextDecade (NEXT), McDermott (MDR), LNG Limited (LNGL), Energy Transfer (ETE), Royal Dutch Shell (RDS.A, RDS.B), Baker Hughes (BKR), Fluor (FLR), Chiyoda (6366), IHI (7013), Venture Global LNG (Private), Bechtel (Private).

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2019 II Rankings: #1 in Shipping & LNG, NatGas

We’re once again honored to be ranked as the #1 Shipping & LNG Research team by Institutional Investor (I.I.), which surveys asset managers controlling ~$2.0 Trillion every year to determine each sector’s top analysts. We’re extremely proud to hold the #1 Ranking in Shipping for the 5th year in a row, and we’re just as proud to be part of the #1 Ranked Natural Gas team for 2019.

We plan to keep the formula the same for 2020, and focus on the same ideas: 1) staying ahead of the curve via thought leadership and strategic, deliberate positioning, 2) providing top-notch customer service, and 3) above all else – doing the right thing, and staying proud of the work we do.

Thank you to any and all who supported us in 2019, and we’re looking forward to earning your support again in 2020.


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Webber R|A: Vertical LNG

As part our launch materials for Webber Research & Advisory, we introduced our Vertical LNG presentation series, which includes a full overview of the entire LNG value chain, from Liquefaction to Regas, including our Global Project Rankings, individual company theses on Cheniere (LNG/CQP), Tellurian (TELL), NextDecade (NEXT), LNG Limited (LNGL), Golar (GLNG/GMLP), Gaslog (GLOG, GLOP), Teekay LNG (TGP), and several private projects, including Venture Global. Our thesis is premised on emerging Supply Push dynamics, and the impact they will likely play on global project FIDs and the forward LNG supply/demand balance, with a clear focus on 1) Proximity to the Permian Basin 2) EPC quality (emerging construction risks), and 3) tangible commercial progress. Over the next 3-4 years, we expect a significant shift in focus downstream, as the global market works to clear incremental LNG into both traditional demand sinks (China/Europe) as well as the emerging markets. To that point, our dynamic LNG supply/demand model probability weights +100 emerging market FSRU and gas-to-power projects, to arrive at a more thoughtful EM demand forecast, which we think is helpful in vetting potential off-take partners and the underlying viability of large-scale export projects.

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Initiating Coverage On The Full Export Infrastructure Spectrum

Coverage Launch & Updated London Agenda: We’re very excited to have formally launched coverage of the LNG space (LNG, CQP, TELL, NEXT, LNGL, GLNG, GLOG, GMLP, GLOP, TGP, etc), Tankers (FRO, DHT, EURN, ASC), LPG Exports (NVGS, LPG), Containers (TRTN, CAI, etc), and Barges (KEX) as well as a number of private companies/projects.

Included in our launch packet yesterday:

  • Our new Vertical LNG sector deck: ~80 pages of project overviews, Project Rankings, and our thesis around each LNG vertical within the LNG supply chain (export projects, LNG carriers, downstream gas to power). We also included our first Outperform rating (ever) on a Greenfield LNG project (NEXT) and highlight our other top picks (LNG, GLOG, etc)/ major risks across the LNG space, including our focus on Supply Push dynamics.
  • Our launch on the Tanker, LPG, Container, and Barge sectors as well, including our thoughts on the impact of Cosco Sanctions, and IMO 2020 implementation
  • Our ESG Scorecard, and our plans to incorporate Carbon disclosures
  • Our takeaways note – Gastech Houston 2019: We’re Going To Need A Bigger Boat

If you’d like access information, please reach out to us at [email protected], or email me directly at [email protected].

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Webber Research: Q219 ESG Scorecard

Webber Research Q219 ESG Scorecard

New Logo, Same Idea. Along with our launch, we also included our Webber Research ESG Scorecard, as we’ll be incorporating additional factors that broadens our models score to include carbon disclosures (below). The scorecard that follows is effectively identical to the scorecard we released in Q2 – the model, data, and scores are inline with Q219 results. Redistributing our ESG Scorecard allows it to serve as a baseline for our model at our new Webber Research & Advisory platform, while also reiterating our commitment to further integrate ESG dynamics into our process. To that point, we intend to imbed each company’s ESG Scorecard quartile prominently within our company notes, to put it on par with other data often highlighted in equity research.

New Carbon Factor. In Q2 2020 we intend to incorporate the disclosure of Carbon data within public company filings as a new factor within our proprietary multi-factor ESG model. Our new Carbon Factor is aimed at aligning certain aspects of our corporate governance framework with the primary metrics found within the Poseidon Principles, and intended to help facilitate the disclosure of carbon data to investors.

The Idea: The premise that underpins our ESG framework is simple – we believe there is no longer a place in the public shipping markets for companies that do not prioritize strong corporate governance and capital stewardship. We believe that risk premiums associated with poor governance and capital discipline should continue to widen, eventually pricing-out conflicted players and antiquated structures from the public markets.

What Is The Webber Research ESG Scorecard? Our scorecard ranks our public  universe on a number of corporate governance metrics, with the goal of identifying both high quality platforms and points of conflict based on those underlying factors. Our scorecard crystallizes a framework that’s been core to our investment strategy and coverage, while also aimed at keeping conflicted entities from relying on anonymity or indifference to perpetuate what’s become a consistent headwind for the sector.

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