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WIKI ANALYSIS
Cheniere Energy (NYSE: LNG) is engaged primarily in the development of a liquified natural gas, or LNG, receiving terminal business and related LNG business opportunities centered on the U.S. Gulf Coast. The company is also engaged in oil and gas exploration, development and exploitation activities in the Gulf of Mexico. LNG is headquartered in Houston, Texas.
Industry Overview
The emergence of America as an LNG importer in the next few years will trigger fundamental changes in the LNG business. Several developments in the LNG trade over the past year are evidence that a pradigm shift is already underway, and will become even more pronounced as large new LNG projects start production.[1]
LNG is natural gas that, through a refrigeration process, has been reduced to a liquid state, which represents, approximately 1/1600th of its gaseous volume. The liquefication of natural gas into LNG allows it to be shipped to economically from areas of the world where natural gas is abundant and inexpensive to produce to other areas where natural gas demand and infrastructure exist to economically justify the use of LNG.[2]
Trends and Forces
Future looking bright for LNG
Cheniere Energy (LNG) has had a spotty record of expectations versus performance over the past few years. 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. This line of thought seems to be 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.
However, 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.
Increasing ability to provide internationally
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.[3]
Notes
- ↑ LNG
- ↑ LNG
- ↑ The long case for Cheniere Energy
References
1. 2006 Annual Report, p.8
2. 2006 Annual Report, p.23
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