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Investing in liquefied natural gas shipping: A key overview

Part 12
Investing in liquefied natural gas shipping: A key overview (Part 12 of 12)

Russia, China, and Europe: Politics affect liquefied natural gas

Politics and trade

Politics can also play a major role in shaping natural gas trade and LNG (liquefied natural gas) shipments, which in turn affect Golar LNG Ltd. (GLNG), GasLog Ltd. (GLOG), Dynagas LNG Partners LP (DLNG), Golar LNG Partners LP (GMLP), and the Guggenheim Shipping ETF (SEA). Given the current tension between Russia and the West, Europe and Russia are both seeking to diversify their natural gas customers. Yet how these political conditions affect the LNG trade and demand for LNG carriers can be quite complicated.

Possible LNG Trade Routes from United StatesEnlarge Graph

Shifting trade

On one hand, if Europe decides to gradually reduce its reliance on Russia’s natural gas over time, LNG and pipeline natural gas imports could grow. Higher LNG imports will be positive for Golar LNG Ltd. (GLNG), GasLog Ltd. (GLOG), Teekay LNG Partners LP (TGP), Dynagas LNG Partners LP (DLNG), and Golar LNG Partners LP (GMLP).

Investors, however, should think more globally, since the political tension between Russia and Western countries is also why Russia is more eager to lock in deals with China. After years of back-and-forth discussions, it appears the two countries have finally agreed to deliver or receive 38 billion cubic meters of natural gas a year for 30 years starting in 2018. The estimated price of the natural gas is $350 to $400 per 1,000 cubic meters (~$10 per MMBtu), which will be competitive against LNG supplies from Australia and United States over the next few years.

Impact on LNG carriers

If fewer LNG supplies are shipped from the United States to Asian countries, then LNG trade growth (measured in ton-miles) will be limited. This is because it takes shorter durations to transport cargo to Europe than to China. Note that China is wise enough to diversify its natural gas supply from other countries and not become overly reliant on countries that are politically sensitive, and LNG supply could still increase rapidly if prices are attractive and there’s demand.

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