{"id":28873,"date":"2012-04-06T10:32:56","date_gmt":"2012-04-06T14:32:56","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/04\/how-to-profit-from-lng-no-matter-what-the-u-s-does\/"},"modified":"2012-04-06T10:32:56","modified_gmt":"2012-04-06T14:32:56","slug":"how-to-profit-from-lng-no-matter-what-the-u-s-does","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/04\/06\/how-to-profit-from-lng-no-matter-what-the-u-s-does\/","title":{"rendered":"How to Profit from LNG No Matter What the U.S. Does"},"content":{"rendered":"

Article by Investment U<\/a> <\/p>\n

\"How<\/p>\n

Invest in the shortage that currently exists \u2013 LNG tankers \u2013 which will only be exasperated if the United States starts exporting.<\/p>\n<\/div>\n

There\u2019s a great, strange story by F. Scott Fitzgerald called, The Diamond as Big as the Ritz<\/em>. In it, the Washington family has discovered a mountain that\u2019s made entirely of diamond in an uncharted part of Montana. It\u2019s just one giant, mountain-sized chunk.<\/p>\n

The tale deals with greed and the basics of the law of supply.<\/p>\n

But the Washingtons can\u2019t let anyone know their diamond mountain exists\u2026 If people found out, it\u2019d collapse the diamond market, making the precious stone worthless. And the Washingtons themselves would be cast into poverty.<\/p>\n

So, it\u2019s this strange dual existence for the Washingtons. They\u2019re the wealthiest family in the world, but only because they vigilantly and brutally control the diamonds that flow from their mountain. They never let on there\u2019s an oversupply.<\/p>\n

Since 2007, the United States has undergone a series of dramatic changes. We fell into the dark days of a recession. These shadows still linger. Banks collapsed. The housing market<\/a> collapsed. Jobs were lost in the millions.<\/p>\n

We\u2019ve scratched and clawed our way back. Though we\u2019re not fully recovered yet.<\/p>\n

But in those years, we also discovered that we had something we didn\u2019t know was there. Old drilling techniques applied to new areas resulted in a staggering increase of precious resources – natural gas and oil. We found our own diamond mountain.<\/p>\n

All of a sudden, it was a new day. We no longer needed to rely as heavily on foreign sources for oil and we had more natural gas then we knew what to do with. The billions spent on terminals to import liquefied natural gas<\/a> (LNG) from overseas \u2013 once again – were obsolete overnight.<\/p>\n

The success of hydraulic fracturing in shale areas flipped the U.S. natural gas industry<\/a> on its head. And of course, the price of natural gas buckled, then collapsed, falling to new decade lows on our sudden abundance.<\/p>\n

The problem is: Now what?<\/p>\n

Don\u2019t Focus on U.S. Nat Gas Exports<\/strong><\/h2>\n

Here\u2019s where things get interesting\u2026<\/p>\n

A lot of people are salivating at the idea of cheap U.S. natural gas being exported as LNG.<\/p>\n

But getting that industry off the ground takes time\u2026 years. And currently, there\u2019s only one LNG export terminal actually existing in the United States – in Alaska – that was exporting LNG to Japan for more than 40 years before the contract recently expired.<\/p>\n

There\u2019s a push on though in the United States and Canada with companies like Sempra <\/strong>(NYSE: SRE<\/a>), EOG Resources <\/strong>(NYSE: EOG<\/a>), EnCana <\/strong>(NYSE: ECA<\/a>), TransCanada <\/strong>(NYSE: TRP<\/a>), Exxon Mobil <\/strong>(NYSE: XOM<\/a>), ConocoPhillips <\/strong>(NYSE: COP<\/a>), BP <\/strong>(NYSE: BP<\/a>), Cheniere LNG <\/strong>(AMEX: LNG<\/a>), Dominion <\/strong>(NYSE: DOM<\/a>) and Williams Companies <\/strong>(NYSE: WMB<\/a>) all are at potential LNG export projects.<\/p>\n

Cheniere is the only one that\u2019s really made any headway. And its first LNG exports are still years away. For the others, investment decisions have to be made, permits, approval, blah, blah, blah<\/p>\n

At the same time, Congressmen Ed Markey and Peter DeFazio and Senator Ron Wyden are looking to block U.S. LNG exports. And any projects that receive approval will have to deal with any public and environmental opposition or petitions.<\/p>\n

This is why I wouldn\u2019t bank my money on a U.S. LNG export industry\u2026 At least not yet. Those companies will rise and fall on news, not anything tangible reflected in their balance sheets, for the next few years in terms of LNG.<\/p>\n

And I ultimately don\u2019t believe the industry will be that big. The United States won\u2019t be the next \u201cQatar\u2026\u201d<\/p>\n

But don\u2019t despair. There\u2019s one aspect of the LNG industry that\u2019s critical to international trade. And is profiting right now, and will continue to profit for the years to come\u2026<\/p>\n

Keep it Simple<\/h2>\n

I don\u2019t invest in surpluses. I invest in shortages.<\/p>\n

Companies like Teekay LNG <\/strong>(NYSE: TGP<\/a>) or last week\u2019s IPO of GasLog <\/strong>(Nasdaq: GLOG<\/a>) might not be household names. If they weren\u2019t on your radar in 2011, don\u2019t worry, because you didn\u2019t miss the boat\u2026 It\u2019s a bad pun, but I\u2019m dead serious.<\/p>\n

They\u2019re part of a small group that controls a very small, but vitally important resource: ships.<\/p>\n

We\u2019ve covered here before about how the high price of oil triggers more exploration. That means companies that own drilling rigs see demand for their services skyrocket, and rates for these services go up exponentially.<\/p>\n

Same thing is true for LNG. Global demand for LNG is up and rising (especially in the wake of the global pullback on nuclear), the price of LNG in Europe and Asia is high, demand for LNG ships to deliver the fuel skyrockets. So, day rates for LNG ships in 2010 were $37,000. Those rates soared to a peak of $160,000 in 2011. And even though they\u2019ve come down a bit, they\u2019ll still likely average around $140,000 in 2012, possibly even going as high as $200,000 per day.<\/p>\n

If you\u2019re doing the math, a jump in rates to $200,000 would be a 441% increase in just two years.<\/p>\n

Here\u2019s the other kicker; there\u2019s a shortage of LNG carriers.<\/p>\n

Now, the utilization rate for the global LNG fleet is around 98% and will remain at that elevated level until 2015, when new builds start coming on line. The few shipyards in the world that can build LNG tankers are booked until the end of 2014.<\/p>\n

There simply aren\u2019t enough ships. In total, 69 new ships are currently on order. It\u2019s projected that there\u2019ll need to be 175 new LNG tankers by 2017, just to meet rising demand out of Asia \u2013 like China and Japan \u2013 as well as the growing LNG spot market.<\/p>\n

And here\u2019s the final piece: if the United States decides to export LNG, any new terminals that do come online will need to ships to haul that LNG, as well.<\/p>\n

Don\u2019t outsmart yourself by trying to figure out whether or not a company is going to finally start exporting LNG from the United States. There\u2019s no money to be made there now. Invest in the shortage that currently exists \u2013 LNG tankers \u2013 which will only be exasperated if the United States starts exporting.<\/p>\n

Good Investing,<\/p>\n

Matthew Carr<\/p>\n

P.S.<\/strong> The companies I mention above, Teekay LNG<\/strong> (NYSE: TGP<\/a>) and GasLog<\/strong> (Nasdaq: GLOG<\/a>), are both solid plays on LNG. Teekay even offers a healthy yield of 6.5%. But one company I saved for Investment U<\/em> Plus<\/em> readers has shown the highest revenue growth of the bunch.<\/p>\n

To find out which LNG shipping company has exploding revenue growth and already pays a 3% dividend to boot, click here<\/a>.<\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n

<\/p>\n

Article by Investment U<\/a> <\/p>\n","protected":false},"excerpt":{"rendered":"

Article by Investment U Invest in the shortage that currently exists \u2013 LNG tankers \u2013 which will only be exasperated if the United States starts exporting. There\u2019s a great, strange story by F. Scott Fitzgerald called, The Diamond as Big as the Ritz. In it, the Washington family has discovered a mountain that\u2019s made entirely … <\/p>\n

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