I am retired and take educated guesses on all things financial.

February 26, 2008

February 27, 2008: Cheniere Energy: Finally, "When" and Not "If"

Cheniere Energy (LNG) has had a spotty record of expectations versus performance over the past few years. I believe this liquefied natural gas terminal, exploration and transmission company operating primarily in the Deep South and Gulf of Mexico is ready to lurch higher, maybe even doubling it's stock price into 2010. My opinion runs contrary to most analysts. In fact, the stock has performed poorly for months, down from $43.60 per share in July to a recent quote of $28.75.

Why am I optimistic? Global liquefaction growth is poised for acceleration. Global liquefied natural gas supply growth over the next five years will likely reach 15% annually (to hopefully match demand) which is double the growth rate of the past five years. Environmental Greens love liquefied natural gas as an alternative energy source that can stand on its own without a subsidy. US imports of liquefied natural gas could triple by 2010 and LNG has a large and well-placed storage capacity to hold this commodity during seasonal price adjustments (more profit for Cheniere Energy).As liquefied natural gas demand is rising quickly internationally, the era of this gas product being cheap is over, based upon elementary supply and demand studies. Cheniere is poised to profit from this, as their large expenditure on infrastructure in all areas of receiving and transporting liquefied natural gas is close to completion. Asia and Europe have liquefied natural gas challenges that are not being addressed - Asia has little storage capacity when viewed on both an absolute basis and as a percentage of demand, and Europe's liquefied natural gas reservoir is depleted and poorly managed (Russia's output from Gazprom was actually down last year) and the EU market structure for the commodity is overly regulated, discouraging infrastructure and storage initiatives, thus Cheniere Energy will store the product and market it to the EU and Asia at a profit. Seasonally, Cheniere has the ability to store the gas and sell it at high price points worldwide and in the US, generally in the first and fourth quarter, as the commodity is driven by heating needs (except in Japan, where it is steady year around). In effect, Cheniere acts as a sponge, absorbing seasonally high output during periods of low demand and then squeezing it out at peak.

In addition to developing, constructing owning and operating a network of three large liquefied natural gas receiving terminals, Cheniere Energy owns natural gas pipelines, a business to market liquefied natural gas company and is engaged in the Gulf of Mexico prospecting for oil and gas.

Om Monday, LNG announced that it is going to look for ways to enhance shareholder value, which will likely include bringing in partners to take a stake in one or more of its terminals and absorb some operating costs as the large infrastructure expenditures are controlled.I view this as a positive, not dilutive, scheme. Hopefully, LNG will follow through on this promise.

I owned and sold LNG a while ago at a profit. I am looking at this stock to purchase again with a longer time frame in mind. For a variety of reasons, you may wish to examine this company as an addition to your alternative energy or pure energy portions of your speculative portfolio.