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TGS: Levered to price of Liquified Natural Gas, LNG

Mar. 31, 2011 10:16 AM ETTGS
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Seeking Alpha Analyst Since 2010

Brett is an independent trader who specializes in closed-end fund investing, an area he believes is the most inefficient part of the securities markets. He also takes long/short positions in companies he believes to be extremely under/over valued. Brett is fascinated with the way investors consistently seek short-term, incremental profits at the expense of long-term, extreme losses.

The recent earthquake off the coast of Japan and ensuing tsunami has raised questions about the future of nuclear power in the world.  Many experts think that the short-term solution to replace nuclear power is liquefied natural gas or LNG.  Considering that the LNG market is relatively small, a small increase in demand leads to large increases in price, so investors may want to look at companies with exposure to LNG prices. 

One company that has not had much coverage because it is illiquid and located in Argentina is Transportadora del Gas del Sur S.A. (TGS).  This company is an Argentinean gas utility, but about 50% of their revenue is from the production of LNG to which they have spot price exposure.  They sell their LNG to a subsidiary of Petrobras at a discount to the global spot LNG price. This makes TGS a good vehicle in which to play a rise in the price of LNG. 

Today TGS is up 6%, so one should wait for a pullback in shares before buying.  Also investors should consider the risks associated with investing in a company in Argentina (currency, political, liquidity risks etc.)

Disclosure:  No position in TGS

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