Thursday, February 13, 2014

Cheniere Energy Is Up More Than 100% and May Go Higher

This article was originally published by TheStreet 
NEW YORK (TheStreet) -- Shares of Cheniere Energy (LNG_), the only United States energy company with all the necessary approvals required for the export of LNG, have been up by more than 100% in 2013. In December the business announced three major contracts, which pushed its shares even higher as the company moved one step closer towards exporting fuel from the Sabine Pass and Corpus Christi Liquefaction facilities.
Other energy players in the industry are also looking to capitalize on the growing demand of LNG from the international markets, but Cheniere Energy is way ahead. The two new liquefaction plants, also called trains (5 and 6), will add to the company's earnings in the coming years.

Cheniere Energy was adding 1.4% to $43.65 in mid-day trading, extending its 2013 advance to 133%.

More importantly, the business will reap benefits of favorable market fundamentals in the next several years. Although Cheniere's investors might not witness a triple digit growth in their 2014 holdings, the shares will continue their rally. 

On Dec. 9, Cheniere signed two contracts with Bechtel Corp., the U.S.'s leading construction company, to perform engineering, procurement and construction of Cheniere's LNG trains and other facilities in Corpus Christi, Texas. The deal is worth approximately $9.5 billion.
The Corpus Christi liquefaction project includes three LNG trains, each with an annual production capacity 4.5 million tons. Besides the trains, storage tanks and two berths will also be constructed.
Feeding Asia
Before the announcements of the Bechtel contract, Cheniere revealed that it has entered into a 20-year agreement with Indonesia's state-owned company, Pertamina Corp, under which, the latter will buy 0.8 million tons of LNG each year, once the Corpus Christi project comes online.
This, which is a first agreement for Corpus Christi, I believe, is a clear indication of the growing demand of LNG from the energy-hungry nations of Asia that will fuel Cheniere's growth for decades. The business has already entered into long-term agreements related to its Sabine Pass facility with several Asian buyers such as India's GAIL Ltd., and South Korea's Korea Gas Corp (KOGAS).
Moreover, Cheniere has been able to fetch better rates with Pertamina, as compared to its previous contracts at Sabine Pass. The new contract has a higher fixed rate of $3.50 per mmbtu, which is clearly more than $3.00 per mmbtu at the Sabine Pass. This could offset the decline in premium on the variable component from 15% in the previous contract to 11.5% in the current.
Unlike the first four trains at Sabine Pass liquefaction, so far Cheniere has not received the necessary authorization from Federal Energy Regulatory Commission for the three trains at Corpus Christi. Cheniere, however, is on track to receive the required approval by 2014 and the facility, which can produce 13.5 million tons per annum of LNG, will commence operations by 2018.
Sabine Pass Going Ahead of Schedule
On the other hand, the Sabine Pass LNG terminal, the company's flagship project, is on track to start full scale commercial operations on its first two trains by 2015. The business is developing a total of six trains at Sabine Pass. Sabine Pass is truly an enormous facility that can process around 17 billion cubic feet of natural gas; that represents a quarter of the total U.S. daily natural gas consumption. The four trains at Sabine Pass Liquefaction represent a total capacity of 18 million tons per annum.
Construction on this project started in August last year and has been ahead of schedule. Although the company initially said that the first two trains will come online by 2015-16, but due to the speed of the work, the trains will start operating by late 2015. So far, Cheniere has signed definitive commercial agreements with two energy firms to supply 7.7 million tons of LNG each year from its first two trains at Sabine Pass.
As for the third and fourth trains, Cheniere has signed three agreements to supply 8.3 million tons of LNG each year. These trains will begin full scale operations from late 2016 or 2017. The fifth and sixth trains, which have already signed commercial agreements to export 3.75 million tons of gas per year, will receive FERC's authorization by 2015 and will come online by 2019.
Temporary Monopoly
While Cheniere Energy has the first mover's advantage but other American companies are also looking to break Cheniere's monopoly by tapping into the growing demand of LNG from outside of the United States.
The world's largest independent energy firm ConocoPhillips (COP_) has a 50% stake in Texas's Freeport LNG export terminal, which has as much capacity as Cheniere's Corpus Christi facility. Freeport LNG has recently received an approval from the U.S. Department of Energy to export up to 1.8 billion cubic feet of natural gas for two decades to countries that do not have a free-trade agreement with the United States.
However, the project still needs a green signal from FERC to begin construction. The expected approval from FERC has been delayed to the second quarter of 2014, which has pushed back its groundbreaking festivities.
Meanwhile, Energy Transfer (ETE_) (ETP_) and The BG Group (BRGYY) are developing a three-train LNG export terminal at the existing Trunkline LNG import facility at Lake Charles, Louisiana. The group, which has already received a conditional authorization from the Department of Energy, will take a final investment decision by 2015. The terminal will have a capacity to export up to 16 million tons of fuel each year. The export project is expected to come online by 2019; about the same time as Cheniere's fifth and sixth trains at Sabine Pass.
At the time of publication, the author had no position in any of the stocks mentioned.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.