The LNG boom in Europe and Asia; and how to profit from it

Despite the high prices of LNG in Europe (in Great Britain the spot price for LNG is $8 per MMBTU), European LNG terminals intake more LNG for transshipment to Asia than for domestic consumption. The reason why is revealed by the chart on the left: despite $8 being a high price, the price of MMBTU of LNG in Singapore is almost $11. This is why many shipments of LNG to Europe get redirected to Asia. As the table below (from Bloomberg) shows, a record amount of LNG shipments are reloaded in North-Western Europe and sent to Eastern Asia:

What makes such arbitrage possible is the Yamal LNG terminal, located in the Yamalo-Nenets region of North-Western Russia. It allows for transportation costs for LNG between Europe and Asia to be reduced from $2,49 per MMBTU to $1,84 per MMBTU. A more detailed map of the trade route is provided by Bloomberg:

Shipments of American LNG to Europe, which began in July of 2017, are also likely to contribute to the volume of LNG that passes through Yamal. Accroding to the EIA, American LNG Export prices are $5 per MMBTU, $3 lower than European prices.

The terminal is most active between May and November, when the ice on the Northern Sea melts, allowing ships to pass through. The terminal itself is a joint-venture project between: Novatek (50,1%), Total (20%), CNPC (20%), Silk Road Fund (9,9%).

The easiest way to invest in the Yamal LNG terminal is by buying shares of Novatek, the majority owner of the project. Novatek is a Russian company, whose shares are traded on the LSE in USD.

NVTK.UK (Novatek OAO), daily chart

NVTK.UK (Novatek OAO), weekly chart

As the daily chart shows, the price recently underwent a correction, meaning that the uptrend is likely to continue in the next few days.

Looking at the weekly chart, however, we recommend waiting for a decisive move in the shares before initiating a position. The price is currently at the historical resistance of 158-160 from 31.07.2011. This resistance level also held twice during this uptrend. In the next few days we expect a retest of the resistance level. We recommend waiting for a retest of resistance. If the resistance holds we recommend opening a long position at support (if possible, the 150-153 level).

Risks:

There several risks for the company. The company is Russian, with associations to Chinese state-sponsored funds. The company will be harmed by the imposition of barriers between the West and the East.

Also, the company trades at very high levels, so we advise using a tight stop-loss. Watch for a breakout below the trendline as a strong sign of a trend reversal.

Charts: Used with permission of Bloomberg Finance L.P.

Sources: Bloomberg Finance L.P.