The Next Natural Gas Stock to Own
Natural gas is trading at $2.13/mmBtu, and the commodity is getting cheaper by the day. Exploration and production companies are deliberately moving away from natural gas production and turning their attention to the more lucrative liquids market -- read: oil and natural gas liquids. Chesapeake Energy (NYS: CHK) and SandRidge Energy (NYS: SD) , which were traditional gas players in the past, have calculatedly ramped up oil production and are investing predominantly in oil assets.
The United States: energy exporter?
However, if you think natural gas is a no-go as far as investing is concerned, then you could be missing out on an opportunity. Cheniere Energy (ASE: LNG) might not look like the next multibagger, but given its future plans, the company could certainly find itself playing a major role in the emerging economies where demand for gas is high. Additionally, all the talk about having the U.S. become an energy exporter should finally become a reality. And that's what looks exciting.
Looking at Cheniere's recent results, there's nothing to write home about. The debt-laden balance sheet is far from impressive, and revenues in the past few years haven't been good enough to ensure a decent bottom line.
But as some of you may have figured out, the company's prospects lie in becoming one of the initial exporters of liquefied natural gas (LNG) in the United States. Total exports from its Sabine Pass LNG terminal, which is operated by subsidiary Cheniere Energy Partners (ASE: CQP) , is expected to be around 16 million tons annually. Each of the four contracts -- with British natural gas giant BG Gulf Coast, Gas Natural Fenosa of Spain, Korea Gas Corp and GAIL (India) Limited -- has a 20 year-term where each customer will pay around $2.3 billion along with a 15% premium on the settled futures price of natural gas.
Construction of the initial couple of LNG trains (to liquefy the natural gas) will start this year, with operations expected to begin in late 2015. The two trains are estimated to cost $9.5 million. The projects look ambitious indeed. With $2.4 billion in debt, the company made a fresh equity offering of $352 million last week to ease the burden.
However, Cheniere's ambitions don't end there. Another subsidiary, Corpus Christi Liquefaction, is planning a $10 billion LNG terminal that should see shale gas from the Eagle Ford reserves being exported by 2018.
Foolish bottom line
Cheniere certainly isn't a worry-free stock. Investors must have a higher degree of risk tolerance to go for this stock. But the potential rewards are tempting enough to make Cheniere worth the risk in my opinion. To see whether Cheniere can cash in, add the stock to your free Watchlist.
At the time this article was published Fool contributor Isac Simon owns no shares of any of the companies mentioned in this article.Motley Fool newsletter serviceshave recommended buying shares of Chesapeake Energy. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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