It’s fair to say that BG Group (LSE: BG) (NASDAQOTH: BRGGY.US) has been struggling recently. High levels of capital spending, poor investment returns and the Egyptian political situation have all taken their toll on the company.
What’s more, management has slashed the company’s production forecast for this year and expects costs to rise as a result.
Nevertheless, BG is a world leader in the production and transportation of liquefied natural gas (LNG). For this reason alone, BG has a bright future.
LNG — the world’s new wonder fuel
Natural gas has long been considered a viable alternative energy source to dirtier fuels such as coal and oil. Users have also been attracted to the fuel because of its low cost.
However, LNG is more attractive than traditional natural gas, as the super-cooled liquid can be transported and stored greater volumes.
Global LNG demand has risen by an estimated 7.6% per annum since 2000. And it’s estimated that global demand for LNG could double by 2030, as the economies of China, India, Japan and South Korea continue to expand and demand more, cheaper, cleaner energy.
The surging demand for LNG, amid limited supply, has pushed prices sky high. According to ICIS, the world’s largest petrochemical market information provider, the LNG contract for delivery during the winter period last year closed at $18.78 per million British thermal units, the highest level it’s ever recorded.
BG’s business model
BG’s business model is designed around the LNG market. Not only does the company produce the liquid, it also transports and markets LNG. So, BG has its fingers in every part of the LNG infrastructure pie, giving the company an unprecedented understanding of the market.
For example, BG owns a fleet of 25 LNG carriers — tankers in other words — which is the largest fleet in the world, and it expects to be the largest LNG supplier to China by 2017. Having its own fleet enables BG to execute a diverse business model, effectively trading LNG, buying the commodity cheaply in one country and selling it to another for a small profit.
Continued growth
BG already has a global LNG presence with trading hubs around the world. However, the company continues to expand its presence, with a total of four new LNG production facilities coming on stream during the next few years. It also aims to double its fleet of LNG transports by 2017.
With its expanding global presence, BG’s management has forecast that the company will be the largest supplier to the LNG market by 2017.
Foolish Summary
Overall, BG may be struggling now, but the company’s position in the global LNG market means that it is well placed to profit from rising global demand for cheaper, cleaner energy.
