Navigator Gas - Looks Toward Ammonia, CO2 Growth Opportunities - Capital Link's Trending News Podcast

The senior management of Navigator Gas NVGS — Mr. Oeyvind Lindeman, Chief Commercial Officer, and Mr. Randy Giveans, EVP - Investor Relations & Business Development —highlighted the company’s recent business developments and their outlook for the LPG and petrochemical sectors during a recent Capital Link Trending News Podcast.

Highlights:

• NVGS focuses on flexibility in the marine logistics chain by investing in assets capable of transporting multiple gas products, such as ammonia, LPG, and petrochemicals, which contributed to its strong financial performance.
• NVGS capitalized on strong demand across all three product segments (petrochemicals, LPG, and ammonia) in the previous quarter, leveraging its operational efficiency and flexibility to meet market demands.
• NVGS is expanding its ethylene export terminal at Morgan's Point to double its export capacity, aligning with its proactive approach to meet growing demand and bolstering its financial performance.
• NVGS's acquisition of a 14.5% interest in Azane Fuel Solutions demonstrates its commitment to investing in sustainable fuel alternatives, particularly ammonia, to capitalize on the shipping industry's transition to low-carbon fuels.
• With the potential for significant volumes of ammonia to be transported globally for bunkering operations, NVGS sees substantial growth opportunities in this segment, aligning with its long-term growth strategy.
• NVGS maintains a balanced approach to capital returns, including quarterly cash dividends and share repurchases. The company's commitment to returning capital to shareholders underscores its financial stability and shareholder-friendly approach.
• NVGS's strategic initiatives include expanding its ethylene export terminal and exploring opportunities in ammonia and CO2 transportation. By positioning itself as a leader in shipping's green transition, NVGS aims to capitalize on emerging segments and maintain its growth trajectory in the coming years.

The full discussion can be accessed here:

Navigator Gas NVGS is the owner and operator of the largest fleet of handy-size liquefied gas carriers globally and provides seaborne transportation services for gases such as ethylene, ethane, liquefied petroleum gas (LPG), and ammonia. Additionally, NVGS holds a 50% stake in the ethylene export marine terminal situated at Morgan’s Point, Texas.

NVGS’ Business Strategy Focused on Flexibility, Future of Green Transition

Compared to the prior year, 2023 was a period of significant growth for the company, particularly in terms of total operating revenue and net income. According to NVGS’ recently released results for Q4 and full year of 2023, the company’s total operating revenue for Q4 2023 was a record setting $141.6 million, compared to $123.3 million during the same period of 2022.  

Similarly, NVGS’ net income attributable to its stockholders during the final quarter of 2023 was $17.8 million, an increase from $10 million during Q4 of 2022.

NVGS’ strong financial performance can be attributed to several key factors and strategic decisions, Mr. Oeyvind Lindeman, CCO, stated to Capital Link. He emphasized the company's focus on flexibility within the marine logistics chain, particularly in terms of investing in assets capable of transporting multiple gas products such as ammonia, LPG, and petrochemicals, rather than acquiring assets that can only transport one type of cargo.

In the previous quarter, as NVGS’ CCO noted, all three product segments experienced strong demand -- with the petrochemicals market being particularly robust; furthermore, LPG has benefited from winter seasonality, and ammonia is also witnessing increased demand. As NVGS is positioned to transport all three types of cargo, it capitalized on the strong markets for all the products.

Additionally, disruptions in both the Panama and Suez Canals further enhanced NVGS’ performance. Due to reduced water levels in the Panama Canal and attacks in the Red Sea, many ships opted to divert, thereby increasing ton-miles. These longer routes necessitated more shipping capacity, positively impacting freight market dynamics, Mr. Lindeman stated.

NVGS also experienced growth due to its ethylene export terminal at Morgan's Point, a joint venture with Enterprise Product Partners. During 2023, the export terminal operated at full capacity, leveraging the company's sizable fleet to meet export demands from the US petrochemical market.

Mr. Lindeman underscored that this confluence of factors, including strong demand across product segments, operational efficiency of the ethylene terminal, and canal disruptions, all contributed to robust demand for gas carriers. With a low order book and favorable market fundamentals expected to persist in the segment, NVGS anticipates sustaining its success in upcoming quarters, its CCO stated.

Long-term Market Outlook Supported by US Gas Production, Low Prices

Going forward, Mr. Lindeman noted that the price of US gas is one of the most important factors bolstering the gas segment. “While the company cannot control events like disruptions in the Panama or Suez Canals, they can capitalize on the advantage of low-cost US gas,” he stated. The abundant production of natural gas and petrochemicals as petroleum by-products, including ethylene, ethane, and LPG, in the US, coupled with their lower prices compared to global markets, forms the basis of NVGS’ export strategy.

Mr. Lindeman highlighted the continued health of US gas production, which is especially evident in regions like the Permian Basin, where investment in gas processing and terminal infrastructure is substantial. This production growth necessitates increased export capacity, aligning with NVGS’ business model of investing in shore-side infrastructure.

The company is expanding its export terminal at Morgan’s Point, a joint venture with Enterprise Product Partners, to triple its refrigeration and export capacity, underscoring its proactive approach to meet growing demand. Mr. Lindeman anticipated that these strategies would fuel NVGS’ business growth over the next decade, providing seamless integration between gas production, export capacity, and shipping operations.

Ethylene Export Terminal Expansion- Capitalizing on Growth

Regarding the terminal expansion, Mr. Randy Giveans, EVP – Investor Relations & Business Development, provided insight into the company's plans for its ethylene export terminal. The project aims to triple the terminal's ethylene export capacity from 1 million to 3 million tons per year, with a significant portion of the additional capacity, at least 550,000 tons per year, secured for the company through a quarter ownership stake of the new refrigeration terminal.

In alignment with the company’s broader focus on flexibility, the conversion of an existing ethane train to accommodate both ethane and ethylene is underway, with equipment orders completed and construction expected to finish by December 2024, Mr. Giveans noted. “The estimated cost of the expansion project for NVGS is between $125 to $130 million, with a large portion of the investment already paid,” he stated. This expansion project is anticipated to significantly enhance NVGS’ financial performance, with expected benefits commencing in January 2025 and contributing to the company's onshore infrastructure growth targets.

The terminal's expansion aligns with NVGS’ core shipping operations, as their fleet of ethane-ethylene capable ships will transport products from the US to global markets, particularly Europe and Asia. Acknowledging the unique advantage the company gains from combining its core shipping operations with the ethylene export terminal, Mr. Giveans highlighted that this integration provides NVGS with earnings stability, which is both valuable and rare in an industry known for volatility. The company's cargo diversification also helps moderate the highs and lows typically associated with shipping.

Furthermore, he underscored the streamlined nature of the export terminal's contracts, which are structured as take or pay agreements, ensuring consistent earnings over time. Navigator’s advanced knowledge of cargo details allows for strategic positioning of its ships, further enhancing operational efficiency and profitability within the shipping business. Overall, the combination of marine operations and onshore infrastructure assets presents the company with a competitive advantage and contributes to its overall business strategy, he stated.

Ammonia Emerging as Alternative Fuel in Shipping

In addition to its expansion of the export terminal at Morgan’s Point, NVGS has also acquired a 14.5% interest in Azane Fuel Solutions, which has set out to build the first ammonia bunkering network in the world. As Mr. Lindeman noted, this move is aimed at advancing the shipping industry’s transition to low-carbon fuels, as pressure to find sustainable fuel alternatives from entities such as the IMO builds. “Among all the options for alternative fuels, ammonia is emerging more and more as a scalable and competitively priced option,” Mr. Lindeman noted. NVGS views this as a significant opportunity, both to contribute to the industry's green transition and to capitalize on the growth of ammonia.

NVGS’ CCO highlighted the potential for substantial volumes of ammonia to be transported globally for bunkering operations, noting that NVGS’ existing fleet is well-equipped to handle this demand. With the shipping industry currently using over 200 million tons of fuel annually, Mr. Lindeman sees significant growth potential if even a fraction of this transitions to ammonia. This shift presents a considerable opportunity for the company to expand its influence and market presence in the segment, ultimately contributing to NVGS’ long-term growth strategy.

A major hurdle to adopting green and alternative fuels in the shipping industry, however, is the lack of infrastructure and availability. While commercial production is significant, the role of port infrastructure will be pivotal in making green fuels accessible worldwide, Mr. Lindeman noted. Initiatives such as ammonia bunkering are extremely important steps in propelling the industry through the green transition. NVGS itself has recently completed ship-to-ship ammonia transfers, simulating bunkering operations, in South Africa. This serves as a significant stride towards demonstrating the viability and safety of ammonia bunkering.

Capital Return Policy and NVGS’ Strategy Going Forward

In terms of capital returns, NVGS’ policy balances quarterly cash dividends and share repurchases. Mr. Giveans highlighted that the company completed the $50 million share repurchase program it initiated in December 2022, wherein 3.8 million shares were repurchased between December 2022 and May 2023.

Subsequently, the company implemented a new return of capital policy based on 25% of its net income, which will be used for either additional dividends or share buybacks, including its fixed dividend of $0.05 per share per quarter. Since the policy's inception in the summer of the previous year, NVGS has opted for share buybacks each quarter, driven by shares trading at a discount to NAV.

Mr. Giveans emphasized the company's commitment to both dividends and share buybacks, with an ongoing focus on returning capital to shareholders. Notably, the company maintains authorization for further share repurchases, signaling a continued emphasis on capital return initiatives moving forward.

Looking ahead, NVGS’ CCO emphasized the company’s commitment to providing safe, efficient, and reliable marine transportation all while integrating with infrastructure projects to enhance profitability and financial returns. Its key initiatives include expanding the ethylene export terminal at Morgan’s Point and exploring further opportunities in ammonia and CO2 transportation. Additionally, Mr. Lindeman highlighted plans to increase the fleet through consolidation or new building, positioning NVGS to meet future customer needs.

Generally, the company aims to make its mark as a leader in shipping’s green transition, particularly in terms of ammonia, CO2, and other emerging segments, positioning itself as a significant player in these markets. Mr. Giveans added that these strategies serve as an outline for NVGS’ growth trajectory for the next several years, with upcoming catalysts including 1Q24 results, time charter renewals at higher rates, and soon-to-be-signed offtake contracts for the terminal expansion.

Capital Link is the investor relations advisor to Navigator Holdings.This content is for informational purposes only and not intended to be investing advice.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.