Investing in liquefied natural gas carriers: The future of natural gas

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May. 22 2014, Published 4:06 p.m. ET

Natural gas

Global energy demand will continue to increase, driven by population growth and improved standards of living. At the same time, emphasis on sustainability becomes more critical. As a plentiful resource and the cleanest-burning fossil-fuel, natural gas will be a key energy source over the next few years. The global natural gas trade, specifically the LNG (liquefied natural gas) trade, is expected to grow at a faster pace than natural gas consumption due to disparities between natural gas–consuming and –supplying regions.

The LNG trade

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There are two ways to transport natural gas: pipelines or LNG shipping. While pipelines are effective at transporting natural gas on land, a significant portion of future trade growth is expected to happen on water. Since 2010, LNG trade has grown at an average yearly rate of 7.5%—above pipeline growth of 4.0% and domestic natural gas production growth of 1.8%.

To transport natural gas across water, the fossil fuel must be filtered and liquefied by cooling the gas down to -260º Fahrenheit. This will shrink the volume of natural gas by 600 times, allowing for economical transportation. Special carriers called LNG carriers are used to keep LNG cool throughout the voyages, and the liquid is then regasified at destination plants.

Companies

GasLog Ltd. (GLOG), Golar LNG Ltd. (GLNG), Dynagas LNG Partners (DLNG), Teekay LNG Partners LP (TGP), and Golar LNG Partners LP (GMLP) are a few publicly traded companies that focus primarily on the LNG trade. Along with other shipping companies, the Guggenheim Shipping ETF (SEA) invests in Golar LNG Partners and GasLog Ltd.

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