Cheniere Energy (LNG 2.29%) is benefiting from an immense opportunity in the liquified natural gas industry. In this Motley Fool Live segment from "The High Energy Show," recorded on June 7, Fool.com contributors Tyler Crowe and Jason Hall discuss why this stock could be a smart choice for long-term investors.
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Tyler Crowe: Cheniere Energy is the first, and I still think largest exporter of liquefied natural gas in United States, they own two facilities, one and Louisiana, one in Houston. The underlying thesis for them is that with the advent of shale we have had a ton of natural gas. I was looking for the fancy idiom, but it couldn't come up with it in time. It has made natural gas so cheap that we can liquefy it, which is an expensive process, ship it halfway across the world and still be less expensive than what they pay for natural gas in China, at what's called the Rotterdam exchanges. Basically like what the price for it in Europe is important in the Netherlands.
This price disparity has been an immense opportunity and the sheer amount of natural gas that we're producing from shale has made it lucrative to do this. Cheniere Energy has been able, there's a chart right there. Right there tells you everything you need to know about what shale did to natural gas or shale did for production of natural gas in United States. We've almost doubled our production in 10 years. Which when you look at those, it's hard to wrap your head around it.
Jason Hall: I think that dip from 2000 to 2005, we thought we were running out of gas. Cheniere was building an import facility.
Tyler Crowe: Yeah. They pivoted really fast because they were like, crap this shale thing is going to really blow up on us. The nice thing about Cheniere, and if you're looking at investing in this is that they have a facility, it is throwing off boatloads of cash that is secured by 20-30-year contracts where the actual price of the commodity isn't even related to their revenues because they do what is called a fixed-fee processing. Then I believe it's a Henry Hub plus 15 percent. Basically, it's like the consumer actually pays the gas price plus 15 percent. Then they also have a fixed fee for doing it. Then I think there's like an annual fee as well. Their revenues are extremely stable to begin with and it has allowed them to start to chip down at their debt amounts because that was one of the big issues when they got started. It's allowing them to allocate to some modest expansions of their existing facility. So you get a little bit of growth there and they have a nice dividend that is going to probably last for 20 years.
Now is LNG a 50, 60, 70 year investment? I don't know but making an investment that it's going to last 70 years. I don't think we can pick a single company on this list and be like, like 70 years from now, they will be great. If I'm making an allocation decision as an investor and I see like our 5-10 year window or something can be immensely profitable. I think that's a good window, and Cheniere Energy fits that really well.
