LNG shippers are an easy way to participate in the global rush for flexible and emission-lite energy. Now that China is trying to move away from coal, LNG is an even more attractive fuel. Teekay LNG Partners (NYSE: TGP) is a great company to check out with its stable and diversified growth.
The new Arctic game
Teekay LNG Partners has signed onto the Yamal LNG project in Northern Russia with six icebreaker LNG vessels. The backers Total, China National Petroleum Corp and Novatek are all well-known names. Thanks to Yamal Teekay LNG Partners is increasing its market share in a niche LNG market while enjoying dependable 25 to 27 year fixed charter contracts.
The LNG vessel market is expected to be oversupplied in 2014 and 2015, but nine of the new vessels Teekay LNG will receive between 2014 and 2016 five have already been contracted to Cheniere Energy and Statoil.
Towards the end of this decade things are expected to improve. In 2017 Yamal's first LNG train is expected to start-up while the market for LNG vessels falls into a deficit. The good news is that the majority of Teekay's LNG and LPG vessels are on long-term contracts that are expected to expire in 2020 or later, leaving limited exposure to short-term issues.
Not all LNG shippers are the same
Golar LNG Limited (NASDAQ:GLNG) is in a different situation. It has nine newbuilds that are going to hit the market in the next couple years. Eight of these ships will join four of its existing vessels on the spot market. Given the short-term supply challenges, Golar LNG Limited has a rough couple years ahead.
It also has a number of older vessels. Golar LNG Limited is considering converting three of its older vessels into floating storage and regasification (FSRU) unit. The company needs to do something innovate, as its legacy ships from the 1970s are at a disadvantage compared to newer and more productive ships.
GasLog (NYSE:GLOG) has a different challenge. It has a number of new ships that will hit the market between 2014 and 2017 in addition to the three ships held in its GasLog Partners (NYSE: GLOP) MLP. The challenge is that only three of its existing contracts are not held by BG Group. Such high reliance on a single company is an important risk. GasLog would suffer if something were to happen to BG Group.
The upside for GasLog is that the majority of its ships have a firm charter until 2018 or later. The risk related to its concentrated customer base remains, but at least GasLog has established revenue. Almost half of its new vessels that will hit the market between now and 2017 have been contracted.
Balanced growth and yield
The LNG shipping market is an easy way to buy into growing energy demand while avoiding many upstream challenges. Teekay LNG Partners is not stuck paying for Gorgon's expensive cost overruns, but Teekay benefits from the extra demand from new projects.
Teekay LNG Partners trades with a distribution yield around 6%. Its mix of growth and a diversification make its cash flow attractive and relatively dependable. Teekay LNG Partners is not reliant on BG Group like GasLog, and it's not stuck with Golar LNG Limited's large supply of new ships.