What’s Next For BG Group plc?

Energy company BG Group (LSE: BG) (NASDAQOTH: BRGYY.US) explores for and extracts natural gas and oil and also produces liquefied natural gas. It is one of the country’s leading energy companies, and it has oil and gas wells in countries such as Brazil, Egypt, Tunisia and Thailand, as well as in the North Sea.

Its share price has had a very good run, rocketing in the past decade. The question is how much further upside there is.

A rapidly evolving industry

The energy industry globally is evolving very rapidly. Companies are gradually moving from conventional oil to ‘out of the box’ routes such as oil sands and shale oil. To supplement conventional gas supplies, more and more gas is being produced through shale gas.

BG Group is also looking to the future through its investments in liquefied natural gas (LNG). In 2010 it invested in the world’s first project to liquefy and ship gas from coal deposits. This is the first of a series of projects in easrtern Australia, and will be producing LNG from next year.

In 2011 BG signed a deal with Louisiana-based Cheniere Energy to export liquefied natural gas from the United States.

A pioneer in liquefied natural gas

As conventional sources of energy peak and then decline, human ingenuity has found other, less obvious ways of producing energy. I am a firm believer that investors in energy companies should look to invest in unconventional sources of energy, whether this be shale oil and gas, oil sands or LNG.

BG has been a pioneer in the commercialisation of LNG, whether produced from coal, shale gas or conventional gas. Thus I see it as a strong investment.

What are the numbers like? Well the company is on a forward P/E ratio of 16, which is predicted to fall to 13 the following year, as its investments in LNG start to bear fruit.

This is a growth company, and growth is expensive. My view is that the company is reasonably priced. I would say it is definitely worth adding to your watch list, ready to buy on any dips.

However, my preferred pick in the gas sector is Centrica, whose share price has recently fallen; this company is on a P/E ratio of just 10.

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> Prabhat owns shares in none of the companies mentioned.