The Next Energy Revolution Multibagger?

An LNG tanker. Source: Wikipedia

Though most energy companies in the U.S. today prefer to drill for oil, the future belongs to natural gas. In the U.S., gas supply has flooded the market and natural gas prices are relatively low. Low prices have, in turn, led to steady demand growth in the U.S. Contrast that with the international scene, where many countries are supply poor and scrambling to get more gas despite huge probable shale reserves. 

A simple way to look at today's situation would be like this: Countries are turning away from coal and nuclear energy and have few other options outside of natural gas. Meanwhile, despite shale gas discoveries, most countries can't get that gas out of the ground, for various reasons. 

Unlike that of oil, the natural gas story is anchored by growing demand. However, there is also tremendous supply, and the ensuing low price tempers profits for domestic upstream companies. So, the greatest challenge, and therefore the greatest opportunity, will not be in getting gas out of the ground, but will be in moving gas from areas of supply to areas of demand. 

For domestic use, pipelines are the clear answer to the above challenge. But for the much bigger and more lucrative international market, gas is moved by liquefying it and then shipping it out as liquefied natural gas, or LNG. This process is not an easy one, and it requires a lot of space, capital and expertise, not to mention the fact that few coastal areas even want an LNG export terminal in their respective backyards. 

In other words, the LNG export market not only has demand growth behind it, but it also provides a service which is hard to get. This is why I believe that LNG shippers could, in the end, be the best long-term opportunity of the North American energy revolution.

The LNG shipping industry undergoing a transformation. Perviously, the largest upstream companies owned and operated their own LNG ships. The space was dominated by companies such as Total (NYSE: TOT  ) and Royal Dutch Shell (NYSE: RDS-B  )

But that dynamic is changing. Companies that specialize in transporting LNG are sprouting up and allowing the big upstream companies to free up capital and focus on core competencies. One of these new companies is GasLog (NYSE: GLOG  ) . GasLog has only been public for two years, and it has a market cap of just under $3 billion. As a new player in a burgeoning industry, GasLog has fantastic potential. 

Although the company is relatively new, GasLog's CEO, Paul Wogan, has been in the shipping business for 22 years, including eight years with Teekay Corp. Since GasLog's IPO in 2012 the company has grown its fleet by over 50% to 15.25 net vessels. Because the LNG shipping business is so hot right now, GasLog's fleet is 100% contracted. 

Not only that, but demand for vessels is expected to grow from 50 in 2014 to almost 600 by 2020. But according to the number of ships under construction today, the number of LNG export vessels online by 2020 will be only about 600. GasLog is in an ideal spot. 

Bottom line
GasLog is in an ideal spot to benefit from the explosion of overseas transportation of NGLs. Unlike many of the biggest ship operators, GasLog is a pure-play on NGL shipping. It is also a very young, small company with tremendous growth ahead of it. Finally, GasLog should begin increasing its 1.7%-yielding dividend by around 2017 when the company finishes most of its current construction projects. 

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