Nows The Time To Invest In LNG

Its time to switch our focus to a new profit play in natural gas.

As I hinted the other day, theres one great way to play a global rise in energy prices even while prices here at home remain low.

Im talking about liquefied natural gas or LNG. And Today I want to share with you the two best LNG investments I see in the sector

As a quick recap LNG is a process to transport natural gas. By super-cooling gas to minus 260 degrees it becomes a much safer and transportable liquid. This happens on a small scale with tanker trucks, but for our purposes today well be covering the seaborn LNG market that utilizes specialty shipping tankers.

LNG is a high-growth, high-profit industry, says shipping expert Andreas Vergottis. Vergottis knows the LNG market as the research director at Tufton Oceanic, the largest shipping hedge fund.

So far the proof is in the numbers when it comes to shipping rates. The cost to book an LNG tanker more than doubled from 2010 to 2011 (from $43k to $97k), according to Fearnley LNG.

With the shipping rate doubled in just one year, you know theres an opportunity to cash in.

Also adding to the urgency is the price discrepancy worldwide. As you know natural gas is cheap here in the U.S. were flush with the stuff and prices are down some 40% year over year.

But take a look at the world market for gas:

At todays prices youre looking at a 5-fold difference in price between the U.S. pipeline price and the Japan/South Korea LNG price. This is a screaming arbitrage opportunity for anyone that wants to make a big bet on LNG.

The market darling, especially over the past 12 months, is LNG shipper Golar LNG (NYSE: GLNG).

To be sure Golar has been making money hand over fist in the past year and its share price shows it up 188% year over year.

Golar owns eight LNG-specific vessels. This makes it the biggest pure-play on the market. Indeed, it really is in a league of its own in this sector. Over the past year while other shippers were struggling with increasingly lower crude shipping rates, Golar made a mint shipping exclusively LNG.

If the shipping trend from in the past year continues into 2012 (which I see happening) Golar will put you in a position for profit and a 2.5% dividend to boot.

The second opportunity I want to share with you in this sector is a familiar face but today I urge you to look at them from an LNG standpoint.

Your best blue-chip bet in the field is a fully integrated company like Shell Oil (NYSE: RDS.B).

Shell is a huge player in the LNG market and although it isnt an LNG pure play it gives you solid upside exposure to LNG shipping and production (both on a global scale.) Plus, what Shell lacks as an LNG pure play it all than makes up for with its exposure to the shale gas market here in the U.S. (as weve covered it before, here and here .)

With LNG, Shell is taking the market by storm.

For years Shell has been moving forward with LNG developments and now those initial moves are starting to pay off.

Shell is an active LNG shipper and holds its own fleet of vessels. So while other natural gas producers would incur huge costs to ship and process LNG, Shell has internalized those costs.

On the production and transport side, one exciting project is coming out of British Colombia where Shell is paving the way for North American LNG exports from a terminal in Kitimat.

The industry believes shale gas discoveries in the provinces northeast are massive and would easily supply exports and domestic consumption The Globe and Mail reports. Companies such as Shell which paid a hefty $5-billion in a takeover in 2008 to expand its B.C. shale gas position believe that the commodity might be left in the ground if exports to Asia arent opened.

Shell is serious about ramping up its LNG processing and shipping. It seems that LNG will be a core business unit for Shell in the years to come, too.

The most exciting LNG news from Shell is its Prelude Floating Liquefied Natural Gas (FLNG) Project in Australia.

According to the press release:

Moored far out to sea, some 200 kilometres from the nearest land in Australia, the FLNG facility will produce gas from offshore fields, and liquefy it onboard by cooling. The decision means that Shell is now ready to start detailed design and construction of what will be the worlds largest floating offshore facility.

This is a big bet on the global LNG market a bet that I think will pay off handsomely for Shell.

Just announced this week, the company is also in talks to break ground on Indias first east-coast LNG terminal. When looking at a map its clear that this east coast terminal would be a prime candidate for LNG imports floating up from Australias (west coast) Browse Basin.

Add it all up and Shell offers you a safe way to get your feet wet in the LNG market. In the past 12 months share price is up a modest 12%, but in more stable market you can much better. With Shell, youre not fully dependent on America exporting natural gas, instead it could turn a profit here at home and on a global scale!

Keep your boots muddy,

Matt Insley

Matt Insley

At The Daily Resource Hunter. we take a fundamentally different approach to research. With our boots on the ground, we travel the world looking for the most lucrative resource, energy, an precious metals opportunities. Each business day we call on our stable of world-class writers and thinkers to show you how to get ahead.