The Wall Street Journal reported that the booming shale gas industry in the United States will help meet the needs of energy consumers, especially Asian consumers, mainly because Asian consumers are more demanding of natural gas. According to Sanil C. Bernstein's Neil Beveridge, China hopes to get cleaner energy. Driven by this, from now to 2020, the annual growth rate of global LNG demand should reach 7.1%.
The biggest limiting factor for LNG consumption is infrastructure. This is a complex business that requires specialized terminal facilities to liquefy natural gas for export. In addition, it also needs to transport LNG cargo ships and re-convert LNG to gaseous receiving stations. It takes time to build these receiving stations and install related equipment. Investors should pay attention to companies that can make money from this business in the future.
The first thing to do is to focus on companies that bring new technologies to the market. New York-listed Golar LNG is one of the first companies to develop a floating liquefied gas carrier (FLNG) that produces, liquefies and stores natural gas. These vessels can move from one natural gas field to another, at a low cost, to extract natural gas from previously considered remote areas.
According to Golar, the cost of each such ship is $1.2 billion. Shell is also using a technology closest to it to build a liquefied natural gas platform on the northwest coast of Australia, which is relatively inferior in terms of mobility but larger; according to Wells Fargo estimates, Golar has $1.2 billion per ship. The cost is only about one-tenth of that of Shell's liquefied gas platform.
Golar has begun to equip a $1.2 billion floating LNG vessel and is considering building two more. As a result, the company will acquire new business in addition to the traditional LNG carrier.
The difficulty for investors is that they have to wait. Golar's first floating liquefied gas carrier may not be profitable until 2017. According to Morgan Stanley's Fotis Giannakoulis, Golar has not signed an agreement to sell LPG gas, but the company said it has three buyers with high turnover. At the same time, starting in 2016, Golar's traditional shipping business will grow as new demand for LNG carriers exceeds supply.
But the growth of Golar's share price by 81% in the past six months is mainly due to the development prospects of floating liquefied gas carriers. Golar's valuation is already high given the company's recent interest, tax, depreciation and amortization gains.
If you look to the future, this business has more growth potential, but this will be a longer process, and many factors may change during this period. Assuming that only one floating liquefied gas carrier is operating after five years, Golar's current valuation is expected to be 9.9 times that of 2019 based on Giannakoulis' performance expectations. This still looks very expensive. But if Golar has three such liquefied gas carriers in operation by 2019, the potential P/E ratio will drop to a more attractive 4.7 times.
It takes a certain period of time for the LNG supply to reach the level of potential demand in Asia. This is why the stocks of infrastructure providers such as Golar are the first to rise, and with the globalization of natural gas demand, these stocks may become big bulls.
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