LNG shipping

[hendi_alex]

The sector currently has too much capacity and shipping rates are under pressure. That is the bad news. The good news - new LNG projects are under construction and the volume of LNG available to be shipped will have a huge jump as these projects come on line in 2015 and 2016. Also of good news is the fact that TGP has no exposure to the spot market until 2015 or 2016, exactly the time that shipping demands will be increasing sharply. I own shares of TGP because of their nice yield of over 6%, because of their history of steady dividend increases, and because of their current contracts negotiated at favorable rates. I also have exposure to the sector via GLOG which is a small and growing player. I cashed out of GLNG but may buy shares of them as well, at some favorable entry in the future. IMO, current over supply and low spot rates will keep the share prices of LNG carriers under pressure for at least two years. For me that simply represents an opportunity to accumulate shares between now and 2015/2016 as LNG begins to flood the market and will need to be moved.

[ronn38]

Interesting! I think LNG will grow as an export commodity as well, but honestly didn't think about it outside of pipelines. very interested in further discussion on this topic (though I fear I'm as exposed to Oil and NG as I want to be).

Ronn

[hendi_alex]

TGP is providing what may be a decent entry price for anyone who is interested. The company announced a public offering and the market has reacted in a predictable way by driving down the share price. In after hours trading, shares are off by $1.86. The shares yield over 6% and the fleet has long term contracts with no exposure to the spot market for a couple of years.

[ronn38]

I was looking at TGP today; but I didn't go further than the pay-out ratio before I stopped. As I mentioned, I do believe LNG has the potential to be a major global commodity--but could you discuss TGP in a little more detail. A quick look at the metric's for me didn't pan out so well--what am i missing?

Thanks,

Ronn

[hendi_alex]

First of all, I'm investing in LNG carriers because I think that this business is in its infancy. Several major production projects will be completed in 2015 and 2016, and that product will have to be moved and will likely overwhelm the LNG shipping capacity.

TGP is a master limited partnership. The payout ratio that you see is a GAAP calculation, which doesn't work for some business structures. MLP dividend coverage is usually measured against distributable cash flow which during the second quarter for TGP was $55.4M or $0.794 cents per share. The dividend paid was $0.675 per share which gives a pay out ratio of 85% or a coverage ratio (DCF/distributions) of 1.18.

The earnings call transcript at Seekingalpha is IMO a very worthwhile read.


http://seekingalpha.com/article/1623942-...urce=yahoo

[ronn38]

Many thanks Alex- I totally missed this was an MLP. Good reading for lunch tomorrow!

Ronn

[EricL]

Alex can you give any color to the difference between TGP and TOO?

From my limited research it appears that they are both daughter companies of TK.

From what I can tell, TOO is structured like an MLP but is registered as a C-Corp in the US and files 1099's rather than K-1's for tax purposes. Since any investment I make will be in a tax advantaged IRA, I'm not interested in dealing with K-1's.

I think this is an interesting investment considering the booming natural gas production in the US and the proposed liquefaction facilities that are expected to be built in the next couple of years. I've added TOO to my watch list and plan to do some more research.

[hendi_alex]

TK is general partner of TGP and TOO, but these two MLPs operate in totally different market segments. TOO is involved in the shuttle tanker business of transporting oil from the oil fields. They also provide storage and according to Yahoo have some involvement on the production end as well. They operate in the North Sea and Brazil. TGP represents a fairly pure play on the LNG market as they have 27 LNG carriers and 5 LPG/Multigas carriers.

So while TOO may represent a good investment, that perhaps offers stable income as well as opportunity for growth, it offers no exposure to LNG. As you point out, it also fits better in the confines of an IRA.

I had to look up a bit of this info as was unfamiliar with details of TOO. Info gotten from Yahoo as well as TK site.

For exposure to the LNG market, you may want to consider GLOG which is small and growing and seems to be doing very well in the current market environment. I own shares of both TGP and GLOG. While GLOG has a relatively low yield now, my bet is for sharp growth in both payout and share price over the next few years.