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1 Stock to Cash In on LNG Exporting

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Cheniere Energy Partners (AMEX: CQP  ) , subsidiary of Cheniere Energy (AMEX: LNG  ) , is officially a force to be reckoned with in the liquefied natural gas export game. Though the company has yet to begin construction on its Cameron Parish, La., facility, it has secured a 20-year export contract, and the future is bright.

The deal
BG Group, a British energy company, agreed to pay Cheniere $8.2 billion over 20 years. BG plans to buy cheap American natural gas from Cheniere and sell it to customers in European and Asian markets, where the going price for natural gas is much higher.

Cheniere's export facility will cost about $6 billion and should be ready to export LNG by 2015. The location currently functions as an import terminal and -- not surprisingly, given the boom in domestic gas production -- is underused.

The global natural gas picture is much prettier than the domestic one. The price of natural gas in U.S. markets is hovering around $4.00 right now, compared with $14.00 to $15.00 in Asia. Demand there is expected to soar nearly 70% over the next 10 years.

First mover
The significance of this deal should not be underestimated. Consider that the LNG export joint venture project between Apache (NYSE: APA  ) , EOG Resources (NYSE: EOG  ) , and Encana (NYSE: ECA  ) is further along in the permitting process than Cheniere's, but that project has yet to secure a single customer.

Royal Dutch Shell (NYSE: RDS-A  ) recently announced a similar LNG export project in the same area of British Columbia, increasing competition for customers. Essentially, Cheniere's timing couldn't be better. It's only going to become more difficult to lock in customers as more players get into LNG exporting.

Hit the road, Gas
The tide has certainly turned. Only a few years ago, companies were clamoring for permits to build LNG import facilities, and operations began just last week at what's expected to be the last U.S. import facility.

ConocoPhillips (NYSE: COP  ) is so desperate to ditch its imports that it recently requested permission from the Department of Energy to export previously imported LNG, essentially acknowledging that there is no market for imported LNG in the U.S. right now.

Foolish takeaway
Cheniere hasn't made a profit in 13 years, and while this deal is a bet on the future, it has the potential to establish the company as a prime-time player in U.S. LNG export. Considering that the U.S. has more natural gas than it knows what to do with right now, it may end up being a very safe bet and the company's ticket to profitability.

Looking for more tips on natural gas? Click here to check out the Motley Fool's special free report "One Stock to Own Before Nat Gas Act 2011 Becomes Law."

Fool contributor Aimee Duffy doesn't own shares of the companies mentioned in this article. If you have the energy, check out what she's keeping an eye on by following her on Twitter, where she goes by @TMFDuffy.

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Read/Post Comments (1) | Recommend This Article (4)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 01, 2011, at 6:00 PM, caztx wrote:

    No mention of the debt Cheniere is holding? No mention of how this company was pumped so high in valuation in 2006 leaving investors hanging? No mention of the extra shipping distance to Asian markets (until canal is widened)?

    Fool me once, shame on you....

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