Cheniere Energy's (NYSEMKT:LNG) LNG export projects hold tremendous potential, and investors have been rewarded with incredible growth in the stock over the past few years. On the other side of the equation, the LNG shipping industry has recently begun attracting more investor interest, as companies such as GasLog (NYSE:GLOG) ramp up their capacity to handle the growth LNG shipping demand.
Let's take a closer look at these two companies, their MLPs -- GasLog Partners LP (NYSE:GLOP), and Cheniere Energy Partners LP (NYSEMKT:CQP) -- and Cheniere subsidiary Cheniere Energy Partners LP Holdings, LLC (NYSEMKT: CQH). There are a lot of parts, and this should help explain what's what -- with a hat-tip to two of my Foolish cohorts for their recent coverage.
Where GasLog Ltd. and GasLog Partners fit in
The first thing to remember is that natural gas shipping is an international story, and GasLog is pretty early in its growth phase. Fool contributor Adam Galas did an excellent job describing GasLog's story, and the strength of its relationship with British BG Group. Even though it only went public in 2012, GasLog has been around for a few years, and its best growth days look to be ahead of it. Its relationship with BG Group and the growth of LNG exporting around the globe in coming years combine to make it a growth story worth exploring.
Of the 23 ships the company owns, nine are still under construction and will be delivered over the next three years, adding significantly to the company's shipping capacity. The company's strong ties to BG Group as well as its expertise in LNG shipping -- combined with the anticipated growth of LNG exports over the coming decades -- are strong indicators that GasLog's new vessels will be in high demand, and that the company will be able to maintain long-term contracts for its fleet.
GasLog LP Partners only went public a few months back and to date owns only three vessels. However, it's expected that GasLog Ltd, will sell more of its assets to the MLP over time, since the MLP gives more efficient access to capital markets and at a better risk profile for GasLog Ltd. It also creates a nice income investment opportunity for investors, since MLPs can often pay out more of their earnings versus a traditional corporation.
Understanding what's what with Cheniere
Fellow Fool Tyler Crowe did an excellent job explaining Cheniere Energy's many parts, so I won't repeat what he explained quite well, beyond this summary:
- Cheniere Energy Partners LP is an MLP, meaning great potential for income, with some tax implications tied to MLP ownership.
- Cheniere Energy Partners LP owns the Sabine Pass LNG export facility and the pipeline that supplies it, meaning all income it produces would be passed through this partnership first, with caveats based on debt servicing first.
- Cheniere Energy Partners LP Holdings is a vehicle to own shares of Cheniere Energy Partners in a C-corp.
- There are a number of caveats that you need to understand about how and when dividends will be paid.
- Cheniere Energy, is the general partner of the MLP (and therefore will recieve a large distribution of cash flows), and also owns the Corpus Christi facility and Cheniere Marketing, which will sell any capacity at either facility not under contract on the spot market.
As you can see, there's a lot to understand about how to best invest in Cheniere Energy, which really only has one business: exporting LNG. The best way to consider the three investment vehicles is as follows: Cheniere Energy Partners LP -- the MLP -- is probably the best choice for income in a taxable account. The partnership isn't taxed at the income level -- since it's a partnership -- and the income is distributed to the partners where income tax is assessed.
If you'd like to invest in the income potential of the MLP, but in a tax-advantaged account like an IRA, Cheniere Energy Partners LP Holdings is the entity to choose. From the Cheniere Holdings website(emphasis mine):
Cheniere Holdings will fund Cheniere (Energy)'s early stage development projects and marketing activities and provide Cheniere with a lower-cost source of capital funding than other alternatives. Cheniere Holdings was formed to attract investors that desire to invest in Cheniere Partners without the tax and other complexities arising from the ownership of master limited partnership securities.
As to the parent company, Cheniere Energy, an investment here will get you access to the income from the Sabine Pass terminal, paid by the MLP, while also exposing you to the potential upside of the Corpus Christi facility and Cheniere Marketing. However, it also would expose you to the downside of these two components if they don't perform. One could call this the "growth stock" option of the Cheniere family.
Final thoughts: Income or growth? Opportunity or predictability?
Cheniere Energy Partners looks like a nice income play, with significant predictability since so much of the Sabine Pass capacity is already under contract for the next two decades. However, the structure of the MLP -- and the use of debt to pay distributions for the next few years -- could limit how much -- and how soon -- income will be paid to shareholders of the other two entities. Consider this before investing in Cheniere Energy or Cheniere Partners Holdings.
GasLog is compelling because access to demand and capacity on both ends of the international LNG market offer optionality that Cheniere just won't have. Whether you're looking for income or growth, GasLog and GasLog Partners both contain some speculative risk; it will take some time for contract terms to firm up for new vessels over the next few years. However, the potential gains appear to be worth the risk.