Home / Markets / With LNG’s transition status confirmed, opportunities grow: Longreach Alternatives

With LNG’s transition status confirmed, opportunities grow: Longreach Alternatives

$710m strategy owns U.S. energy assets, returning royalty income to investors

Last week the European Commission voted to include nuclear energy and natural gas as environmentally sustainable investments in a new green taxonomy scheduled to take effect Jan. 1. Natural gas is seen as central for its role in transitioning to lower-carbon energy sources from high polluters.

The vote means that new gas projects will be able to receive funding from a fresh pool of money from ESG investors. The move will help many EU countries by supplying low-carbon energy to replace Russian fossil fuels.

One of the more unique energy-focused strategies in the market today is the Longreach Energy Income fund. The strategy seeks to “give investors exposure to a diversified portfolio of predominately US Natural Gas investments held through mineral royalties and royalty-like interests”.

  • With Natural Gas prices at record highs, the sector is once again the highlight as it continues to outperform other asset classes. Goldman Sachs notes that “commodity and broad physical inflation has now returned to a level not seen since the 1970s, triggering a coordinated attempt by central bankers to drain liquidity from the global economy, with consequences felt across risk assets. As central bankers can drain liquidity faster than the economy can generate new production capacity, financial assets will continue to underperform physical assets like commodities.”

    With many European countries electing to not buy Natural gas from Russia, prices are likely to remain high for some time particularly as China reopens after Covid lockdowns. And that’s where most of the demand is likely to come from, Asia. This should benefit other Natural exporters such as the U.S. where its producers are able to operate at low running costs. 

    The Longreach strategy holds a diversified portfolio of US Natural Gas investments, representing the right to develop or lease land in the US. Investors are rewarded in the form of royalty payments and partnerships with producers.  With commodities booming, the fund is targeting a 20 percent total return of which 8 percent is to be returned via income over rolling three-year periods, net of fees.

    The fund joins the wider range of Longreach Alternatives’ investment funds, adding to its boutique offerings. A common theme for the Longreach funds is “sustainable income”. Energy sits alongside its private debt and sustainable wild-caught fisheries funds. The asset manager has considered having a separate Longreach strategy that combines all the income streams into a single offering suitable for the burgeoning retirement market. But, for now, at least, the team is content to maintain a silo approach for each market.

    It is a unique play on predominately natural gas supported by a portfolio of US-based gas projects in Texas and Oklahoma. According to the US Energy Information Administration, the Henry Hub Natural Gas spot price (averaged $7.70 (Dollars per Million Btu) in June and the EIA expects U.S. natural gas prices to remain high through 2022 (U.S. Energy Information Administration – EIA – Independent Statistics and Analysis). It says, “We expect U.S. natural gas prices to remain relatively high in 2022 because of lower-than-average natural gas inventories resulting from factors affecting both supply and demand. Consumption of natural gas in the U.S. electric power sector has remained high despite high natural gas prices. We expect that the consumption of natural gas in the U.S. electric power sector will average 0.9 billion cubic feet per day (Bcf/d) more in 2022 than in 2021. In addition, we expect that U.S. exports of liquefied natural gas (LNG) will remain high this summer, partly as a result of Russia’s full-scale invasion of Ukraine. So far this year, 75% of total U.S. LNG cargos have gone to Europe, compared with 34% in 2021. High international natural gas prices may also lead to more U.S. LNG exports.””

    For that reason, the Longreach Energy Income fund is a great way to play the natural gas market for the short to medium term.

    Source: U.S. Energy Information Administration – EIA – Independent Statistics and Analysis

    Print Article

    ASIC levy review targets adviser ‘time-lag’ issue

    The review will consider “the consequences of time lags between regulatory action and cost allocation”, the terms of reference states.

    Tahn Sharpe | 11th Aug 2022 | More
    AMP Advice to ‘break even’ by 2024 as losses soften

    The institutional provider’s AUM and profit lines stayed red in 1H22, but positive signs emerged.

    Tahn Sharpe | 11th Aug 2022 | More
    INBrief with Gabriel Carey from Cadre Capital

    Gabriel Carey from Cadre Capital speaks with Jamie Nemtsas at The Inside Network’s Income & Defensive Assets Symposium.

    The Inside Adviser | 10th Aug 2022 | More
    Advisers urged to tread carefully with ‘wholesale investor’ status
    Staff Writer | 28th Jul 2022 | More
    Top hedge fund award goes to L1 Capital
    Greg Bright | 13th Dec 2021 | More
    MAX Award winners and the new world outside
    Greg Bright | 13th Jun 2022 | More
    Quality of advice review focused on advisers, not consumers
    Drew Meredith | 11th Jul 2022 | More
    INDepth with Andrew Lockhart from Metrics Credit Partners
    The Inside Adviser | 30th Jun 2022 | More