For the last five or six years growth has been pretty hard to find, and it doesn't look like that dynamic will change anytime soon. While some emerging markets do offer solid growth, it can be difficult for the overseas, retail investors, to find ways to profit from that growth. Big technology companies, a wellspring of growth just over ten years ago, have largely matured.
But in oil and gas, several transformations have been under way thanks to technological advancements across the board. These transformations have led to spectacular growth, growth that, this time, retail investors can participate easily in. This article will go over two important, transformative trends in energy and will offer one investment for each trend. While these names are certainly not the only choices available, I believe that each represent a good place to start.
Rise of LNG
The world's energy demand is still growing. At the same time, many power-hungry, manufacturing countries such as Japan and Germany have announced plans to reduce or eliminate reliance on nuclear energy. Many other western countries are working to reduce reliance on coal. This leaves a powerful vacuum that is most economically filled by natural gas.
The biggest sources of natural gas in the world are Australia, the U.S., Africa, and Russia. The greatest demand, however, comes from Europe and East Asia. Complicating things further, exporting natural gas is a capital-intensive operation. That's where LNG shippers come in.
Between now and 2025, capacity to ship liquefied natural gas, or LNG, will rise by 5% per year. Shippers of LNG will have a lot more to ship. The demand for LNG export vessels, ships which take a lot of time and capital to make, is expected to rise to almost 600 by 2025. Yet, only 300 LNG vessels are forecasted to be online by that time.
GasLog (NYSE: GLOG ) is one of a handful of names focused exclusively on LNG charter ships. This $2.2 billion company has a fleet utilization rate of 100%, and despite the company's ambitious ship construction program, it is unlikely that utilization rate will change much, given current market fundamentals. GasLog has put itself into one of the best trends in energy today.
North to south
In the past, US pipelines moved natural gas from the traditional supply source, the Gulf Coast, to the traditional demand source, the Northeastern seaboard. Today that trend has reversed, or has at least become much more complicated. Thanks to huge shale discoveries, the greatest source of dry gas supply in the US is now the Marcellus Shale in Pennsylvania. This discovery was so game-changing that natural gas prices in the US dropped well below those of the rest of the world, thereby giving the US petrochemical industry, which depends on natural gas as an input for so many chemicals, to boom all along the Gulf Coast.
The end result is that gas now flows from Pennsylvania to both the eastern seaboard and the South. Most pipeline operators were not ready for this, but Williams Partners (NYSE: WPZ ) certainly was. Years ago, when Williams built its Gulf Coast to New England gas pipeline, the Transco Pipeline, the company decided to make the pipeline a bi-directional one. Management at the time had no idea what a great decision that would be. As other pipeline companies scramble to retool their systems to the new reality, Transco is the single fastest-growing pipeline system in America.
These two important energy trends are not the only ones going on today, but I believe that both now provide fantastic opportunities to investors who can be be enterprising but patient. In the coming years, LNG will become a much bigger pie than it is today. In the U.S., gas will increasingly flow from the north, not the south. While Williams and GasLog are certainly not the only choices here, I believe that both represent a good place to start looking.
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