Gas is all the rage right now, but not just refined crude or the spicy gas from Chipotle ($CMG). Liquid natural gas (or LNG if you want a shorter way to spell it), is currently one of the most demanded fuel sources worldwide. Surprisingly, the US has the largest LNG reserves, and also the cheapest. What does that mean for the rest of the world? The US can dictate what they want for this gas.
Gas is insulated from trade wars
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Even if the US got cut off from all of the trade with China, they will still need to buy record numbers of LNG, and they aren’t the only ones desperate for it. Regions who can’t get enough of this gas include:
- Latin America
- SE Asia
SE Asia and Europe show the strongest demand and it’s growing, needing to purchase nearly ⅔ of LNG production (66% between the two regions). This means that the big winners here? LNG shipping companies.
Golar LNG (GLNG) and GasLog (GLOG) are the two members poised to make the most money on this need to purchase gas, as they currently are the dominant players in the LNG shipping market. Right now, quotes for day rates for ships are $90,000 per day, up from $40,000 per day just a year ago. All the ships under construction are currently affixed to contracts, so you could see prices jump upwards of $150,000 per day for rates with zero increase in capital expenditures. Think about it like Uber’s surge pricing on New Years Eve. Still costs the driver the same amount of gas to get from Las Vegas Blvd to home, but instead you pay an 11x surge and a $10 trip costs you $100.
Go long on LNG
Looking at the two major companies that are dominant in the market, both show significant opportunities for growth. Using a 5 YR DCF EBITDA model, $GLOG shows a 51% upside to the $19 close (9/19/18) and has a $29 price target. $GLNG has wild predictions, but future contracts are not baked into the share price yet. GLNG has a street prediction of ~$37, but could see $40-$50 based on news.