Yesterday, GasLog successfully IPO’d its wholly-owned subsidiary, GasLog Partners LP (NYSE: GLOP). Shares opened at $21, well above the proposed price of $18, and jumped as high as $26.68 before closing the day at $26.11.
The spin-off company will own and operate three of GasLog’s liquid natural gas tankers and pay investors an annual yield of 7.5%. In the future they will have the option to buy another 12 LNG tankers from GasLog.
And with all of the hustle and bustle in the media on LNG shipping from the United States, it’s no wonder the Monaco-based company debuted this spin-off.
Despite its initial success, will the short term really reward new investors looking for their own slice of future U.S. LNG exports?
Since the beginning of the year, rates for LNG vessels have been cut in half. Earnings for companies like GasLog and the new company GasLog partners will languish at $70,000 per day. At that rate and thanks to a huge influx of new ships, tanker owners will struggle to stay in the black.
In other words, LNG tankers may not be the best purchase for short term profit-hunters. The long-term, however, holds more promise. Cheniere Energy (NYSE: LNG) expects to have their Sabine Pass terminal on-line at the end of 2015, while other hopeful companies in the U.S. want to start shipping in 2017 or 2018.
Think about what’s going on for a moment.
Right now, we’re seeing new refineries opening in the U.S. Demand is also growing steadily in both China the country continues to transition away from coal, as well as in Japan, where natural gas is an extremely attractive alternative to nuclear energy – especially in a post-Fukushima environment.
So, it isn’t bold to say these LNG tanker owners could see much larger profits as we near 2020.
They’ll just have to wait…
Perhaps another question at hand is whether GasLog Partners will see profits from the U.S. exporting more LNG to Europe and the Ukraine? On paper, the notion of rescuing them from Russia’s energy tyranny is sound. Before we get too far ahead of ourselves, however, remember that the earliest U.S. LNG exports will begin is at the tail-end of 2015. Even then, more than half of those shipments will be destined for terminals in India and South Korea!
Moreover, Cheniere’s facility won’t be able to distribute a significant amount of gas until at least 2017, at which point it will be able to displace only one-sixth of what Russia supplies to Europe right now.
This also doesn’t take into account the fact that the entire situation in Eastern Europe up to this point has been largely unpredictable, so it would be futile for anyone to predict what Russia, the Ukraine, or the rest of Europe will do by the end of 2015, let alone 2018, when most of the U.S. LNG refineries could open.
Of course, we’re also barring all of the governmental red tape that will inevitably delay the process even longer.
For now it seems that GasLog, GasLog Partners, and other LNG shipping companies will have to weather the weak market until demand rebounds, especially as investors receive a dose of reality for U.S. LNG exports.