Navigator Gas

The Ultimate Arbitrage: We Have It, Europe and Asia Need It

Market Cap: $988,800,000

P/B: 0.80x

Net Debt: $814,670,000

EV: $1,844,450,000

Shares Outstanding: 69,290,000

1. Business Overview

Navigator Gas is the operator of the largest fleet of liquefied gas carriers in the world (59 vessels). The main products the company ships include petrochemicals, LPG, and Ammonia with 50% of the fleet being ethylene transport capable. Demand for the companies’ products is strongest in Asia and Europe.

Since the shale revolution in the Permian Basin the US has become awash in cheap Natural Gas Liquids (NGLs) that simply cannot be absorbed for domestic consumption. The nature of shale wells is that they produce a lot of associated gas that is rich in NGLs and Ethane and to avoid flaring these NGLs have to be transported out of the Permian making the long-term supply of Navigators product abundant and cheap especially when compared to similar products used in other parts of the world.

Ethane is tied to the price of natural gas while Naphtha (feed stock in Asia) is linked to crude pricing and is used in the production of basic materials such as paint and plastic. Due to the cost differential between Ethane and Naphtha, Ethane has been taking market share for some time.

In addition to the cost advantage between Ethane and Naphtha, there exists are similar pricing disparity in Ethylene between US based products and Asia/Europe (double the cost in EU/Asia vs US).