LNG Stocks That Have Risen Up to 91% in 2011

BOSTON (TheStreet) -- The nuclear disaster in Japan has piqued interest in how the Asian country's energy needs will be met given the loss of capacity.

As a result, those concerns have helped spark a boom in demand for liquefied natural gas (LNG), a cheap, plentiful, environmentally friendly, multi-purpose fuel.

And separately, the near-record prices for crude oil have only added to its appeal, as well as that of the services of the unique tanker ships that deliver LNG from producer to the consumer country.

LNG is natural gas that has been cooled into liquid form for shipping, the most efficient means of transporting it other than via dedicated pipelines. Many tanker companies lease their vessels on long-term contracts, so few are available for "spot," or short-term lease.

"The tanker market is so tight right now that anybody with viable tankers is going to be making a killing," said Steve Johnson, president of Waterborne Energy, a Houston firm that tracks oil and LNG shipping, in an interview Wednesday. "There are no -- zero -- tankers available."

"Spot charter," or short-term, rates on LNG ships have risen to about $90,000 a day from $20,000 a day not long ago, he said, and $100,000 a day isn't far off.

DnB NOR Markets, the financial-advisory arm of Norway's DnB NOR Bank, which is one of the world's foremost shipping industry banks and a major international player in the energy sector, said in a new research note that "we are very positive on the short- and long-term prospects for LNG shipping. The combination of limited fleet growth and strong transportation demand should keep rate levels at highly profitable levels over the coming few years."

Johnson said Japan's immediate needs aren't expected to cause a spike in demand for LNG as his firm's analysts expect the 100 to 120 monthly LNG ship visits it was seeing prior to the March 11 earthquake and tsunami should rise by only five to nine vessels per month to meet the current demand. "So it doesn't have the big global impact that some people believe."

Demand growth in Japan, currently the world's largest importer of LNG, is expected to remain steady at 2% per year, but could rise as its economy recovers from its nuclear disaster. The scenario could be much different if Japan decides to back away from nuclear and replace it completely as an energy source with natural gas.

Johnson said most of Japan's supply needs are being met regionally, from Australia, Indonesia and Russia, so supply isn't an issue now.

LNG will be a cheap and plentiful resource for years, because the nation of Qatar flooded the LNG market with new product last year after it completed new processing facilities that have given it command of the world's LNG market. And the U.S. is producing more than it needs due to its expansion of oil share projects.

The amount produced in 2010 was at the highest level in almost 40 years. "Global production of LNG has grown 30% in the past three years and demand is huge across Europe and Asia," where it's used for household cooking and heating, in public transit vehicles and in electricity generation, Johnson said.

Shares of many of the firms in this niche have skyrocketed on speculation that they can name their price when they renew their typical, multi-year contracts with LNG suppliers.

The Standard & Poor's 500 Index is up 6.5% this year and 14.5% over the past 12 months. Here are four stocks of companies seen benefiting from the rising demand for LNG, and how their shares and businesses are performing:

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Golar LNG ( GLNG) is one of the biggest beneficiaries from the spike in demand for the services of its fleet of LNG tankers as it is one of the world's largest independent owners and operators of LNG carriers.

And it developed the world's first floating storage and "regasification" units based on the conversion of existing LNG carriers. These vessels now play a key role in the shipment of LNG to major ports as they serve as safe, off-shore storage terminals, and hence are an alternative to bringing LNG ships into crowded harbors or having potentially explosive gas plants on shore.

Golar's shares have risen 91% this year and 130% over the past 12 months, through April 5, giving the company a $1.6 billion market value.

Goldman Sachs ( GS) has Golar on its "conviction buy list," its top rating, while Morningstar reports that it found seven "buys," two "outperforms," three "holds" and one "sell" ratings among the analysts' reports it reviewed.

Steinberg Asset Management owns 13.2% of its shares as of year-end, making it the largest institutional investor. The Sentinel Mid-Cap Value Fund ( SIMGX) is the biggest mutual-fund shareholder, with a 7.4% stake.

The company said last week that it's going to finance two new LNG carriers via an initial public offering on Nasdaq, under the ticker "GLMP." It is expected to raise about $251 million and is due to launch April 8. It will pay a 7% dividend.

DnB NOR Markets, which has a "buy" rating on Golar, said in a March 31 research note the new venture "increases its growth opportunities."

The Swedish financial advisory firm SEB Enskilda Research also has a "buy" rating on Golar and had a $26 share price target on its shares as of April 1. That price has since been exceeded. The research note says "we believe the reshaping and expansion of the company is not over and that the LNG market is in a very dynamic phase."

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Teekay LNG Partners ( TGP) based in Hamilton, Bermuda, is the LNG shipping arm of global oil and gas transport giant Teekay Shipping ( TK). It operates a fleet of seven LNG carriers and five "Suezmax" (capable of clearing the Suez canal) class crude oil tankers under long-term, fixed-rate contracts with major energy and utility companies.

On April 4, Teekay LNG announced that it was issuing 3.7 million units of a limited partnership interest that will provide one-third of the financing of four new LNG tankers that will begin entering service late this year and through 2012. It priced them at $38.88.

Teekay LNG's shares are up 2.8% this year through April 5 and 36% over the past year, giving it a market value of $2.2 billion. Its shares hit a 52-week high on March 21 of $41.50.

The Neuberger Berman funds own 6.8% of its shares, followed by Goldman Sachs, with 4%. The company has a 20% institutional ownership.

Zachs Investment Research has the shares rated "neutral," with a $42.30 price target. They're currently trading at $38.63.

Columbine Capital has a "sell" rating on its shares on a valuation basis, noting that Teekay LNG's shares have outperformed the S&P 500 by 24.75 % over the past year.

Analysts give its shares two "buy" ratings and five "holds," according to Morningstar.

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BG Group ( BRGYY) a U.K.-based firm, and originally an international oil exploration and production company, entered the liquefied natural gas industry early on and is now one of the leading global integrated natural gas player with an extensive resource base, and strong and growing production capabilities.

It has natural gas development sites in Egypt, the U.K., Trinidad and Tobago, and Kazakhstan as well as oil resources and production facilities. It supplies natural gas for delivery to high-value markets in the U.S., Europe and its is a major player in Asia due to its huge productioin base in Australia.

Late last month, BG got a setback in Australia as a planned development project that would link LNG production facilities with a port that would serve Asia, was found to violate government environmental operations. However, BG recently said it doesn't expect the delay to have a material impact on the project's scheduled completion date of 2014.

Last October, the company said it would pay $950 million to buy a 50% interest in shale gas assets in Appalachia from EXCO Resources ( XC) in an effort to continue to build out and diversify its developable natural gas assets.

Its shares, which trade as ADRs in the U.S., have about doubled over the past 10 months, to $127.60 recently, giving the company a market value of $86 billion.

On March 16, S&P Equity Research raised it to a "buy" rating from "hold." S&P reported it found two "buys" and one "buy/hold," among other analysts' ratings.

A Bank of America ( BAC) Merrill Lynch research note from Feb. 9 said BG "has the best near-term earnings growth outlook in the sector, based on our forecasts.

"Furthermore, longer-term the company offers an excellent investment opportunity among the integrated oils, driven by best-in-class exploration and production volume growth, a leading position in global LNG and a material position in a potentially vast new play in Brazil," BofA Merrill Lynch said.

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Cheniere Energy ( LNG) owns natural gas terminals along the Gulf Coast and is redeveloping some of them into LNG terminals that could be used to liquefy natural gas for export instead of import.

The company operates in three segments: LNG-receiving terminals, a natural gas pipeline business, and an LNG and natural gas marketing business.

The strength of the U.S. market makes exports economically viable, as the development of natural gas from oil shale deposits in the U.S. in recent years has led to a supply glut and limited the need for imported LNG.

In a recent news release, the company said the export project could be in operation by 2015.

Cheniere has signed non-binding agreements with a string of potential customers in Europe, Asia and the Americas in recent weeks, according to Reuters.

For 2010, Cheniere reported a net loss of $76.2 million, or $1.37 per share, compared to a net loss of $161.5 million, or $3.13, in 2009.

Shares of Cheniere are up 68% this year and 130% over the past 12 months, giving it a market value of $594 million.

Institutional investors own 65% of its shares. GSO Capital Partners is the largest investor with a 14% stake.

Thomson Reuters found one "strong buy" rating. The company has limited analyst coverage.

Citigroup Global Markets ( C) has Cheniere rated "speculative buy," and gives it a $10 price target. It said in the March 3 research note that "the stock is an extremely risky and speculative investment. Cheniere generates no earnings and will not generate any earnings in our model for the next five to six years" but if it achieves liquefaction production and customers follow through with orders, it will be able to deal with its "substantial amount of debt."

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