As shale development increases domestic production and pushes natural gas prices way below global levels, U.S. producers are making moves to export LNG -- a natural gas cooled to become a liquid so it can be shipped. Most of the attention surrounding natural gas is the oversupply in the U.S. However, there is a significant demand for natural gas in the Far East.
The real problem with natural gas is not an oversupply issue in the U.S., but a distribution problem. The distribution problem is getting the oversupply of natural gas to where it is needed most -- the Far East countries. While natural gas trades at around $2.00 per million cubic feet of gas in the U.S., it sells for around $15 or higher in the Far East.
The optimal solution is the idea of cheap U.S. natural gas being exported as liquefied natural gas (LNG). Getting the LNG industry off the ground takes a long time. There are at least 10 companies with potential LNG projects but Cheniere (LNG) is the only one that's really made any headway-- and its first LNG exports are still years away. The play today is to invest in the LNG tanker stocks.
Global demand for LNG is up and rising, 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've come down a bit, they'll still likely average around $140,000 in 2012-- possibly even going as high as $200,000 per day.
Teekay LNG Partners (TGP) is the world's third largest independent owner and operator of LNG vessels, providing LNG, LPG and crude oil marine transportation services primarily under long-term, fixed-rate charter contracts with major energy and utility companies through its interests in 27 LNG carriers (including one LNG regasification unit), five LPG/Multigas carriers and 11 conventional tankers. TGP is a publicly-traded master limited partnership (MLP) formed by Teekay Corporation (TK) as part of its strategy to expand its operations in the LNG and LPG shipping sectors.
TGP declared a cash distribution of $0.675 per unit for the quarter ended March 31, 2012, an increase of $0.045 per unit, or approximately 7 percent, from the previous quarter. The cash distribution is payable on May 14, 2012 to all unitholders of record on April 23, 2012. TGP has a dividend yield of 6.61%.
On March 29 2012, Shares of liquefied natural gas carrier operator GasLog Ltd (GLOG) went public on the NYSE. GLOG priced its initial public offering of 23.5 million shares at $14 apiece. The Monaco-based company had expected to offer the shares priced $16 to $18 apiece. Since then, the shares are down to around $11.73. GasLog plans to use the proceeds from the offering to make installment payments on its eight new LNG carrier construction contracts.
The company intends to pay a quarterly dividend of 11 cents per share commencing in the fourth quarter of 2012. This is a dividend yield of 3.75% that is sure to grow in the future. For 2011, GasLog posted a profit of $13.7 million on revenue of $66.5 million -- 99 percent of which came from BG Group. The company's big year is going to start in 2013 as dividends look stable based on contracts but they are too far for investors to look.
The bottom line is to look to pick up shares of TGP on market pullbacks and to watch the progress of GLOG as this stock will require some patience as it ramps up its future capacity.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.