Will Shale Gas Cause the Tide to Turn Against TGP?

Includes: TGP, TK, TNK, TOO
by: Old Trader

TGP, or Teekay LNG Partners, is a subsidiary of oil, gas, and product shipping oil giant Teekay Corporation (NYSE:TK). As one would correctly assume by the name, TGP’s focus is on the LNG market.

In the US, LNG ports/regasification facilties are pretty much confined to the east, north east coasts, and the Gulf of Mexico, no doubt a consequence of the heavy usage of natural gas in those areas.

But for a number of years, Europe, and to an even greater extent, Asia, has played a large, and growing role in the LNG market. Prior to the development of LNG carriers, gas was considered a “stranded” asset. The US could have natural gas coming out of its ears, and Europe could be in the midst of a deep freeze, as a result of Russia playing political games with the various pipelines supplying Eastern European gas to Western Europe, but there’s no pipeline running under the Atlantic (or the Pacific, for that matter) to transport the excess from over “here” to over “there”; hence the rapid growth of the LNG carriers.

But the explosive development of shale gas all over the world, from the US, to Europe, and now China might change the dynamics of the situation. In fact, it appears that where Europe was going to be the “next big thing”, as far as shale gas goes, it appears that finds in China will tilt the needle eastward, which might well have a dramatic impact on the LNG market.

One problem that I’ve been having is trying to decipher just how much of an impact the discovery and development of shale gas fields will ultimately have. While there’s NO question that some astoundingly large plays have been found, and are being developed, there do seem to be some conflicting reports as to the sustainability of the production from these fields.

According to TK’s website, TGP has 15 LNG carriers, and an additional 4 newbuilds in progress. The site also shows 3 LPG (liquid propane carriers), with an additional 3 newbuilds. I’m not certain if the LPG carriers are in TGP’s fleet, as the site doesn’t break out the info in that way, but it seems like a reasonably safe assumption that they would be. If I find out differently, I’ll be sure to update this.

TK, and all of its various subsidiary holdings (TNK, TOO, TGP), tends to focus on long term charters, as opposed to being heavy players in the spot charter market, which makes for less volatility in earnings, and hence dividends, or distributions.

Jubak’s Journal on MSN Money has a good piece on the possible effects of shale gas production on the LNG market.

Disclosure: Author is long TNK, TOO