Oil companies typically come into favor in mid-December and remain so until late April or early May ...
2 Stocks to Ride the LNG Waves
05/06/2013 8:30 am EST
A number of companies are making shrewd investments in the natural gas market, predicting a resurgence, and Roger Conrad explains here how you can join them.
Roger, I understand there are some interesting energy investments in Australia and Canada now.
Absolutely. You know, these are countries known for their resource wealth, and their currencies also tend to move with the prices of these resources. So you really get kind of a double play on the energy, on companies that are bringing it out of the ground, and then a currency benefit as a US investor.
They pay their dividends in Canadian dollars, in Australian dollars, and these are currencies that will do well if we see more inflation in the United States, which is inevitable in my opinion.
Right, and then you’re talking about oil, natural gas, but also liquids?
Well, liquefied natural gas is kind of a newer thing. What’s been discovered is that you basically compress the gas and freeze it to a low temperature so it comes into a liquid form, and then you can, not freeze, but you can send it around the world in tankers, whereas gas...
Yeah, no pipelines. So there are a number of facilities being constructed in Australia off the coast, mostly by major oil companies, but a number of Australian companies are also involved in that too. There’s a project underway by ExxonMobil (XOM), for example, and a company called Oil Surge, which is a partner in that, and this is going to be a huge profit mover for them as this facility starts producing.
Gas is in tremendous demand in China, in Korea, and increasingly in Japan, where after Fukushima there has been a real reaction against nuclear power, which is most of their power supply at this point. This is a huge business.
And to some extent it's taking off in Canada as well. At a facility called the Kitimat facility in British Columbia, Chevron (CVX) just made a big investment in that. They got approval from the Canadian government, so when that’s constructed you’re going to see gas coming from Canada sold to Asia as well. It’s a real profit center for companies that are tapped into it.
Well, how about the supply in Australia and in Canada? Any chance of running out any time soon?
Well, not really. I mean, the big problem that they’ve had—particularly in Canada—is just that it’s landlocked. You can’t really sell gas outside of North America at this point, because all the liquefied natural gas facilities are geared for imports, and that’s the result of decisions that were made back in the last decade—you know, in the wake of events like Hurricane Katrina, when the price of gas got in the double digits, and there was a big concern that we were going to have to import more and more.
Now of course, with the shale discoveries and the new technology for getting it out of the ground, there’s positively a glut. So there’s a lot—at some point, of course, finite resources run out, but I think there’s a tremendous amount in the ground and already in production that can find its way to other markets.
In terms of an individual investment, are they MLPs, are they energy trusts, or stocks?
Well, you know in Canada or Australia, you’re going to be buying common stocks, companies like Apache (APA), which is a huge pipeline company.
In Canada, companies like—particularly the former income trusts, I think, are the most interesting. Pembina Pipeline (PBA) is a former income trust converted to a corporation without cutting its dividend, and actually has been increasing dividends on an annual basis. The more they invest, the more their earnings grow, and the more they can grow their dividends.
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