How to profit from the liquefied gas boom
Get set for a boom in liquified natural gas, says FAZ.net. With oil prices high, and coal producing even more carbon dioxide than oil when burnt, clean-burning natural gas is becoming an ever-more popular energy source.
Global gas usage has climbed by an annual 2.6% over the past decade, and should keep climbing at a similar clip over the next 20 years, according to the US Energy Information Administration. But as gas reserves in the US and the UK decline, and Asian demand increases, reserves in Russia and the Middle East will gain in importance, resulting in a growing global mismatch between production and consumption.
Enter the liquified natural gas (LNG) trade, whereby gas is turned into liquid through supercooling, pumped into special tankers, and turned back into gas at LNG terminals once it arrives at its destination, where it is pumped into local pipelines. Today, LNG trading comprises over 25% of the international gas trade (with the rest accounted for by pipelines) and this proportion will keep climbing as demand increases. According to the German bank HVB, industrialising Asia will be the key factor, while the US and Europe will also need more LNG.
The best bets over the medium term, according to Lehman Brothers, are the firms involved in liquification plants or import terminals. One company to consider is Air Products & Chemicals (APD, $65), the world’s leading supplier of gas liquification plants, which recently reported a 16% year-on-year profit increase for its second quarter. UBS, which recently rated it a buy, sees scope for a 26% climb from current levels.
FAZ.net also highlights steel producer Tenaris (TS, $38) as a beneficiary of the LNG boom; it is providing pipes for the world’s biggest LNG project in Qatar. A racier bet, though still a favourite among analysts, is Cheniere Energy (LNG, $40), which is developing three liquid natural-gas terminals along the US Gulf Coast. Thanks to heavy spending on LNG, it is still loss-making and profits are only expected to materialise in 2009.
