What Are the Risks at Cheniere Energy?
As the debate over liquefied natural gas exports rolls on, many investors have become intrigued at the idea of investing in U.S. LNG. As far as stock market opportunities go, the only company in the States with all the necessary approvals for such exports is Cheniere Energy . If you haven't been following the company, you may have some questions not only about Cheniere itself, but also about how it fits into the global LNG picture. That's why we created a premium report on the company, to help guide investors on whether or not Cheniere merits consideration for their portfolios.
Following is an excerpt from the report, which focuses on the company's main risks. It's just a sample of one section, but we hope you enjoy.
- In order for it to be worthwhile for Cheniere to export LNG, the company needs to beat what it estimates are delivery costs of $8.85 and $10.60 per mmbtu in Europe and Asia, respectively . That model is built on several assumptions, however, including the price of the U.S.-produced gas that Cheniere must purchase, and shipping costs, not to mention the price gas is selling for in target markets. The import price of natural gas in Europe has ranged from a low of $9.36 to a high of $11.97 per mmbtu over the past two years, while Japan has seen prices hit a low of $11.45 and a high of $18.11 per mmbtu over the same period. The price of gas in the U.S. ranged from $2.00 to $3.50 in 2012. The opportunity is obvious, but markets are unpredictable beasts; if the global price of natural gas drops too low, or the domestic price of natural gas climbs too high, Cheniere's margins will suffer.
- Cheniere will face stiff competition for export customers. Though the Department of Energy has not made final decisions on issuing LNG export permits to many other American companies, domestic foes are not the most serious threat to Cheniere . Right now, the company's real competition comes from the foreign giants that dominate the natural gas export scene. Remember, Cheniere is not just competing against other LNG programs, but all natural gas shippers outside the U.S., and that includes pipeline shippers like Russia and Turkmenistan. The world's top five exporters -- Qatar, Australia, Iran, Russia, and Malaysia -- all have significant natural gas reserves. Combined exports from those countries are expected to reach at least 220 million tons per year by 2015. While world demand is expected to outpace that figure by 2020, there are no guarantees with regards to demand or price environment that can ensure Cheniere's success at this time.
- Cheniere has a pretty long history of failure. The company hasn't been profitable in a decade. Originally founded as an oil and gas explorer and producer in 1996, it switched to importing and regasification in 2000, before finally making the decision to attempt to export when it formed Sabine Pass LLC in 2010. Debt began to balloon in 2005 and total long term liabilities are now hovering around the $2.5 billion mark. Its financial situation is definitely a risk.
Looking for more guidance
That was just a sample of our new premium report on Cheniere Energy. If you're weighing whether the company is a buy or sell, the report is an essential resource for investors seeking more information on the company. Not only that, but the report comes with updated quarterly guidance and dives into upcoming catalysts on the horizon. To get started, simply click here now.
The article What Are the Risks at Cheniere Energy? originally appeared on Fool.com.Fool contributor Aimee Duffy has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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