Playing LNG Exports Without Getting Into Costly Terminals
Natural gas consumption in the U.S. is estimated to grow by about 0.6% per year from 2011 to 2040. Worldwide demand is also expected to increase by over 40 billion cubic feet per day by 2015 and by over 50 Bcf/d by 2025.
Natural gas, an abundant and cheap resource
The low prices of the last few years, combined with the increase in production, led to some producers finding alternatives in order to sell natural gas to local markets at cheap prices, generating meager profits. As a matter of fact, over the last decade, U.S. natural gas production has increased 12-fold, totaling 22.9 Tcf in 2011, and production is still rising each year.
Source: Annual Energy Outlook 2013, EIA
Furthermore, at the end of 2010, total proved and unproved U.S. natural gas resources, including total recoverable resources, were estimated at approximately 2,327 Tcf, making natural gas the commodity of choice for cheap energy.
To enlarge its profits, producers started to consider the possibility of exporting natural gas outside the country, to non-free-trade countries, subjected to the U.S. Department of Energy's (DOE) approval. Emerging countries are in dire need of energy to sustain its growth, so countries such as India are willing to pay at least twice the U.S. commodity's price to get natural gas, which means substantial profit.
After the first export license was granted to Cheniere Energy for its Sabine Pass Terminal project in March 2012, the DOE put an hold on the rising export license requests to further determine the impact trend and ensure that American energy needs were to be met before resuming request studies and license approvals.
Building export LNG terminals like Cheniere's Sabine Pass requires massive investment capital. Sabine Pass would cost approximately $5.9 billion initially, according to the company. Investing such large amounts of money is risky because no profit will be generated before the terminal is commissioned and operating, which is often about three to five years of waiting. This could be a long wait for shareholders expecting a return on their investments.
Alternatives to costly LNG export terminals
When it comes to LNG investment alternatives, shipping the resource appears to be a great move. As a matter of fact, companies need LNG carriers to ship natural gas from export terminals to new markets. The first shipping company that comes to mind is Teekay LNG Partners L.P. , an MLP formed by Teekay Corporation in which the MLP owns interest in the LNG tankers. The MLP grows through vessel acquisitions from Teekay, expanding its fleet to suit its customers' needs.
Teekay manages a fleet of over 150 vessels, including 29 LNG carriers. The company is the world's third largest independent owner and operator of LNG carriers that provide LNG through long-term, fixed-rate charter contracts with major energy and utility companies. Teekay's MLP offers an attractive distribution that yields about 6.5%.
The second LNG shipping company is the leader in the industry's floating LNG regasification facilities development. Golar LNG owns a fleet of more than 13 vessels dedicated to the shipping and regasification of LNG among other structures. Golar has $2.5 billion in contracted revenue and an average remaining contract term of 7.1 years. Golar yields about 5%.
Golar LNG Partners L.P. owns interest in four LNG tankers and four floating storage and regasification units. Since its IPO in April 2011, shares are up 42.4%. The MLP yields about 6.43%.
Last but not least, this growth-oriented international owner, operator, and manager of LNG carriers owns six ships, and eight are scheduled to hit water between this year and 2016. GasLog Logistics , is an exclusive LNG shipping company. Through its subsidiary, GasLog LNG Services, it manages and operates 11 other LNG carriers, owned or leased by BG Group. GasLog is well positioned to capitalize on the growing demand for LNG shipping since it has all the requirements needed to ensure its future growth when new shipping opportunities occur. GasLog yields about 3.09%.
Foolish bottom line
Whether local or abroad, there is growing demand for natural gas. Fortunately, the commodity is more abundant than ever thanks to the U.S. shale gas revolution. Producers are positioning themselves to profit by shipping it to emerging markets worldwide.
One way to get into the play is to invest in natural gas producers, while another is to hold shares of LNG export terminal companies. However, the safest way is probably to invest in shipping LNG carriers since producers will need to reach the targeted market by contracting these shipping companies. One thing is for sure: LNG is receiving a lot of attention lately, and several companies are getting prepared to take a bigger piece of the cake.
The article Playing LNG Exports Without Getting Into Costly Terminals originally appeared on Fool.com.Stephan Dube has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.