Revealed: My Top Energy Stock for 2012
It’s one of the most unique companies on the planet. In fact, I count only two other business that do the same work.
Still, the demand for its product is volatile. This company can earn $20,000 a day or $120,000, depending on the market. When times are good (like they were in 2011), this company can make investors money hand over first.
Golar LNG (Nasdaq: GLNG) simply has that much potential for the coming year.
Golar shareholders will have fond memories of 2011 — the stock delivered an impressive 212% return last year. But this rally isn’t over yet, because the same tailwinds that led to this gain will continue blowing through at least 2014.
Golar is a play on the burgeoning global trade of liquefied natural gas (LNG). LNG is natural gas that is super-chilled until it becomes liquid, which can then be transported by ship anywhere in the world.
This company operates a fleet of modern LNG tankers, as well as floating storage and regasification units (FSRU). These retrofitted vessels park offshore, warm the chilled liquid gas back into ordinary natural gas, and then offload the cargo directly to pipelines for delivery to its final destination. Golar is one of only three FSRU operators worldwide.
Global LNG demand is in the early stages of a powerful growth spurt. Annual production has already spiked 60% since 2005 and currently stands at 230 million tons. And energy companies such as Chevron (NYSE: CVX) are plowing $200 billion into new projects — investments that mirror import growth from gas-hungry nations such as Japan and South Korea.
As with anything else, LNG shipping rates are a function of supply and demand. From 2007 through 2009 more than 120 new ships entered service, and the glut of capacity caused daily spot market shipping rates to sink below $20,000 per day, down from more than $80,000 a day in 2006. Predictably, most companies stopped ordering new ships.
So now, only a handful of new vessels are trickling onto the market. And customers come knocking quickly. Last spring, when the tragic earthquake forced Japan to step up its LNG imports, there were no tankers available for hire — not a single one. Golar’s average daily charter rates surged to $92,000 per day last quarter. And shippers will probably be willing to pay even more in 2012.
Shipping capacity is expected to inch up only about 3% next year (just 10 new vessels will be added to the current global fleet of 359). Yet, global LNG production is projected to climb 47 million tons, or 21%. In other words, additional LNG production around the world will outpace new delivery capacity by a seven-to-one margin, tightening the shipping market even further.
Sensing what’s on the horizon, charterers have been scrambling to secure freight tonnage up to two years before the voyages actually take place, just to avoid being left out. Golar just chartered the Golar Grand ship to a major energy firm at the robust price of $110,000 to $120,000 per day. And the company has ambitious plans to add eight new fuel-efficient carriers that will be booked solid under multi-year contracts.
Action to Take–> Yes, this is a cyclical business — but nobody minds that during an upcycle. And with global production of LNGs sure to grow for years to come, I think Golar will prove to be a profitable investment in 2012.
– Nathan Slaughter
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