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Investing Topics: LNG Exports

Naturally Volatile

Much of the recent upside in natural-gas prices reflects the unusually hot summer weather, expectations for a cold winter and modest supply growth, as oil and gas producers have curbed their drilling and completion activity in prolific US shale plays. However, our intermediate- to long-term outlooks for gas supply and demand remain unchanged–nor has our investment strategy.

We prefer to buy shares of high-quality producers that have strong balance sheets and high-quality acreage in leading basins–names that will take market share over the long term.

However, timing is a critical component of our strategy.

Investors should buy when gas prices inevitably tumble because of excess production and an unusually warm winter–a confluence of events that has occurred on several occasions over the past decade. You might also consider taking smaller positions in some higher-beta names that we wouldn’t regard as the best long-term holdings.

It’s equally important to take some profits off the table when natural-gas prices rip higher. The time for such a move is imminent.

Investors should also maintain exposure to well-positioned midstream operators that stand to benefit from accelerating production growth in low-cost basins. With natural-gas demand expect to climb in coming years and the US boasting a world-class resource base, the potential volumetric growth is truly impressive.

More CAPEX, More Problems: A Survey of Big Oil

When casual investors think of the energy stocks, one of the Seven Sisters—BP (NYSE: BP) NYSE: BP), Chevron Corp (NYSE: CVX), Eni (NYSE: E), Exxon Mobil Corp (NYSE: XOM), Royal Dutch Shell (NYSE: RDS B), Statoil (NYSE: STO) and Total (NYSE: TOT)—likely springs to mind.

But these Western energy giants have come in for a great deal of criticism over the past several years, as investors lose patience with the industry’s massive capital investments and limited production growth.

Robust Injections Validate Our Call for Retrenchment in US Natural-Gas Prices

Far too many investors and commentators mistook  last winter’s surge in natural-gas prices as the start of a durable rally. But unless last winter marked the onset of a new ice age, the underlying supply and demand trends that prevailed before the polar vortex were always going to win out.

GasLog Partners LP: A Virtuous Cycle

The creation of GasLog Partners LP provides GasLog with a cost-effective means of recycling capital to fund additional growth opportunities. This virtuous cycle involves GasLog selling LNG carriers in its fleet to GasLog Partners at prices that are accretive to the MLP’s distributable cash flow. The parent then redeploys some of the proceeds into ordering or acquiring new vessels that can be dropped down to the MLP once they obtain longer-term contracts.

Betting on US Energy Exports

Given the expenses, uncertainties and extended timelines associated with building liquefaction infrastructure, our inclination is to steer clear of pure plays on LNG exports. We prefer names that offer exposure to this trend but also stand to benefit from other upside drivers in the near term.

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