When natural gas is cooled to minus 260 degrees Fahrenheit at a liquefaction facility, the fuel condenses to roughly 1/600th of its original volume, facilitating overseas transport in specially designed ships.
Japan and South Korea have traditionally accounted for the bulk of global LNG demand. In coming years, we expect the global LNG market to expand significantly, with China and other emerging markets in Asia driving much of the upsurge in demand.
For investors seeking pure-play exposure to rising demand for LNG, we
prefer shipping companies that own fleets of LNG carriers, especially
conservatively run names that boast ample long-term contract coverage
and reliable distributions.Teekay LNG Partners LP (TGP)
owns a fleet of 27 ships that transport LNG, five vessels that carry
liquefied petroleum gas (LPG) and 11 conventional oil tankers.
its existing ships are contracted under long-term time charter
arrangements at fixed day-rates; the MLP's LNG carriers have no
impending fixture expirations through 2015, while the average
outstanding contract for its LPG and conventional oil tankers stands at
15 years and 10 years, respectively.
Although the unit price of
the publicly traded partnership has lagged peers that have more
exposure to the spot market, we prefer the MLP's conservative
positioning over the next few years.
Not only would Teekay LNG
Partners' cash flow be insulated from near-term weakness in the spot
market, but management also sees opportunities to acquire vessels from
marginal shipowners that made ill-advised bets on short-term tightness
in the spot market.
With a distribution yield of 7.3 percent
that's backed by cash flow from solid, long-term time charters and ample
liquidity to take advantage of future growth opportunities, Teekay LNG
Partners LP rates a buy up to $39 for conservative investors seeking