LNG Has a Bright Future. Here Are 2 Ways to Participate

While the shale oil revolution gets a lot of media attention, the global boom in LNG, fueled by distance between points of supply and demand, gets relatively little attention despite having a potentially greater impact around the world.

Jul 8, 2014 at 10:39AM

Lng Ship Wiki Source

Photo credit: Wiki Commons. 

We live in a world of shaky power sources. While coal is plentiful, most of the developed world is working to reduce reliance on this form of energy. Since the nuclear accident in Japan, former nuclear stalwarts Japan and Germany have announced plans to phase out that source of power, as well. Solar and wind, often touted as the future, are not yet commercially viable in most places, and these two sources' intermittent, decentralized nature has proven somewhat incompatible with the 20th century 'grid' model. 

That leaves just one power source: Natural gas. Natural gas demand has been increasing all over the world, but has been doing so especially in energy-hungry, industrialized Asian countries. Unfortunately, Asia has relatively few sources of natural gas, and so gas must therefore be imported.

You might be wondering how that is even possible. Transporting gas accross the world in its natural form would be both cumbersome and silly. Instead, the gas must be super-cooled, shipped, and finally regassified at its destination; a difficult and capital-intensive task.

That's where LNG shippers come in. As the distance between point of supply and point of demand grows, so too will demand for LNG. In fact, demand for LNG is expected to grow by 5% each year until 2025.

Lng Vessel Demand

Courtesy of Teekay LNG Partners Investor Relations

This chart sums up the situation pretty well. While there is excess shipping capacity right now, within just a few years demand will overwhelm supply, and the end result will be either much higher charter rates or many new LNG ships on the high seas. Either way, the LNG carriers will prosper. 

Look for the independents
While in the old days LNG shipping was limited to just the big, integrated players, over the last ten years, independent companies and partnerships have been coming to the fore. One of the more established yet focused LNG shippers is Golar LNG (NASDAQ:GLNG)

Golar has been less than nimble over the past few years, and that has resulted in weak performance over the recent quarters. Repeated LNG export terminal delays, particularly in Africa, have resulted in a lower ship utilization rate for Golar. Currently Golar has a fleet of 26 carriers, nine of which are under construction. Nine of those 26 carriers are also available for spot chartering, with three others as candidates for conversion to "floating" LNG, a promising technology where the gas is liquefied, at the point of extraction and on the ship itself, thereby avoiding all the onshore politics. With all of these new builds, It will take at least another 12 months for Golar to bring its fleet utilization rate back to normal. 

An income-oriented way to play the LNG trend is Teekay LNG Partners (NYSE:TGP), an LNG-focused master limited partnership and spinoff from Teekay shipping, which owns 37% of the partnership. Like most LNG carriers, Teekay LNG has high cash flow visibility: Its average contract life is 13 years. Teekay LNG owns 28 LNG carriers, with plans to add another 6 by 2017. Currently, Teekay LNG yields 6%, and its distributable cash flow is a respectable 1.1 times distributions. 

Foolish takeaway
Golar LNG and Teekay LNG partners are two ways to participate in the global LNG boom, but they are certainly not the only two ways to do so. I believe that these names merit further research from anyone who is thinking about investing in the LNG industry.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Casey Hoerth 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information