Dear Mr. Berko: I’ve decided to invest about $100,000 in the stocks of liquefied natural gas carriers for income and growth. I know enough about the natural gas business to be dangerous but nothing about the transportation or storage of the product. During the past seven years, I got lucky and made some big money trading futures but then made some bad judgments and lost it back. I know there are a lot of public companies that own LNG carriers, but I don’t know enough about the shipping business to make the right buying decision. If you could find me something with a high dividend (at least 9 percent), I’d be willing to take the risk on three or four issues. I’d appreciate your good judgment.
— D.L., Rochester, Minn.
Dear D.L.: You sound like a good young flake with a lot of money, someone bereft of common sense and short on experience. My good judgment and your bad judgment might make a team!
Global energy demand, a function of population growth and improving living standards, should continue to grow. As a plentiful resource, natural gas is the cleanest-burning fossil fuel and is a key energy source for the future. And the global natural gas trade (specifically liquefied natural gas) is expected to grow at a faster pace than natural gas consumption. At the end of 2015, there were about 405 LNG carriers (we need more), each carrying about 10 million cubic feet of natural gas. New LNG carriers take between 20 and 30 months to build, at an average cost of $200 million to $270 million, and have a useful life of about 35 years.
There are two ways to transport natural gas: pipelines and LNG carriers. Pipelines move natural gas on land, but a significant portion of future growth is expected to occur on water. Since 2010, LNG trade has grown annually at 7.5 percent, versus domestic production of 1.8 percent. To move natural gas across water, the gas must be filtered and liquefied by cooling it to minus 260 degrees Fahrenheit. This shrinks the volume 600-fold, making transportation costs very economical.
