The LNG market is taking off. Over the last decade, we have seen Cheniere Energy, Inc. (NYSEMKT:LNG) reverse its LNG facility to an export facility and now it is poised to begin exporting in 2015. On May 29th, the Department of Energy announced that it is proposing to accelerate its LNG export license approval process. This lifted Cheniere Energy, Inc., Cheniere Energy Partners, LP (NYSEMKT:CQP) and Cheniere Energy Partners LP Holdings (NYSEMKT:CQH).
Henry Hub, the U.S. benchmark for natural gas prices, is currently trading around $4.02/MMBtu and it compares attractively to the European spot rate of $10.44/MMBtu and the Japanese spot rate of $16.18/MMBtu. These price differentials should drive a robust export market. According to Wood Mackenzie Global, demand is forecast to grow from 236 mtpa (~32 Bcf/d) in 2012 to 532 mtpa (~71 Bcf/d) in 2030 - a compound annual growth rate of nearly 5% per year.
As Cheniere comes on line and as the industry demand grows, demand for shippers will grow too. Dynagas LNG Partners, LP (NYSE:DLNG), GasLog Ltd. (NYSE:GLOG), GasLog Partners LP (NYSE:GLOP), Golar LNG Ltd. (NASDAQ:GLNG) and Golar LNG Partners LP (NASDAQ:GMLP) are all LNG shippers with attractive charts. The problem with shippers is that there is a supply demand risk that needs to be managed to invest in this space well. Our thesis is to own these stocks until 2015 or 2016 when the ramp of U.S. LNG exports will begin to decelerate with Cheniere's export facilities coming on line. At that time, we expect that shippers will have purchased enough new ships that the risk of oversupply will begin to manifest itself. When that happens, the rates at which shippers will be able to lease their ships could start to decline and hurt margins and future profits. We believe the market is rational enough not to oversupply itself before Cheniere comes on line, but that is not a certainty.
One of the nice benefits of the LNG boom is that there are several vehicles to invest in with retirement money. Generally, investors are advised not to own MLPs in retirement plans due to UBTI and its tax consequences. However, Cheniere Energy, Inc. is a C-Corp and Cheniere Energy Partners LP Holdings can be bought in a retirement plan. Likewise, GasLog Ltd. and Golar LNG Ltd are not UBTI generating Master Limited Partnerships.
While these stocks and MLPs appear to be breaking out, monitoring the LNG export market, global LNG prices, export facility development and the supply of LNG ships will be critical to successfully investing in this sector. However, at this point, the market appears to be ramping and the realization of a major new export industry is taking hold.
Disclosure: I am long CQH, GLOG, DLNG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Our clients own CQH GLOG and DLNG