Natural gas booming in Asia
Natural gas is becoming an increasingly popular source of energy in Asia. Soon, Australia may compete with Qatar as the biggest exporter of liquefied natural gas.
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The big energy companies are already moving in. Shell, BG Group, ConocoPhillips and Malaysia’s Petronas are among those developing projects in Queensland. The growth in LNG production from Queensland alone has tripled in recent years.Skip to next paragraph
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With all these projects, it’s quite possible that in the next decade, LNG will surpass coal as Australia’s most valuable export. The government is certainly supporting LNG projects – it will add a gush of tax revenues to its coffers. Look at what oil did for the Middle East; the same kind of thing could well happen for Australia.
The best way to play LNG, in my view, is to own the companies that put together the Erector Set that LNG needs to operate. There are cold boxes that turn the gas into liquid. There is special insulated pipe. There are storage systems. There is a whole complex of stuff that has to be put together.
By owning one of the companies that makes all of that stuff, you don’t take on the enormous risk that goes along with any one production project. I mean, $50 billion (the latest estimate) for Gorgon is a gargantuan bet – too big for any single oil company to go it alone, hence the joint venture. And then there is price risk – no one can say what the LNG will sell for or what kind of returns it might generate.
It’s simpler to own the companies that put it all together. They will enjoy fat cash flows and swollen order books for years to come. One of my favorites here was Chart Industries (NASDAQ:GTLS), which I recommended to the subscribers of Capital & Crisis early last year. The stock has more than doubled since then, so it is not the screaming buy it used to be. But I still consider Chart to be a very solid, long-term investment.
Chart makes the mission-critical LNG equipment that all these projects need. The company is No. 1 or No. 2 in all of its markets – important in a business in which failure of equipment is not an option. Chart is still a small company in a fragmented market. Meaning it can get a lot bigger.
But Chart is just one example. The growth of the LNG market throughout Asia will create innumerable investment opportunities. Watch this space!
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