Cheniere's Done It Again

I am back with another story about this attention-grabbing stock-- Cheniere (AMEX: LNG  ) . The company has taken another step toward its goal of exporting U.S. liquid natural gas across the globe and has added another chapter in the U.S. oil and natural gas industry. Within a month of its deal with U.K.'s BG Group, Cheniere Energy Partners (AMEX: CQP  ) , a subsidiary, has struck another deal to export LNG.

Two to tango
Cheniere entered into an $8 billion deal with BG Group in October to supply 3.5 million tons per year of LNG from its Sabine Pass Liquefaction project. Now, it has entered into a similar deal with Spain's Gas Natural Fenosa. The $9 billion deal with Fenosa is to supply 3.5 million tons per year of LNG for a period of 20 years, which can be extended by 10 years.

The two deals have come at a time when the company is in dire need of refinancing to pay off its existing debt, especially the one due in May of next year. This should instill some confidence in investors and may help cash-strapped Cheniere draw financing for the first phase of the $10 billion export terminal at the Sabine Pass. Cheniere, which has been running in losses for the past 13 years, can now hope to turn the tables.

Role reversal
Cheniere built the Sabine Pass Liquefaction project as an import terminal based on the high demand for natural gas in the U.S. But the sudden increase in production of natural gas from shale fields resulted in a glut of supply and made import unfeasible with Cheniere running into losses. Hence, the reversal.

Cheniere is adding export and liquefaction capabilities to the Sabine facility and thereby plans to use the supply glut to its advantage. The export terminal will be built in phases, and Bechtel has been given the contract to build the first phase with a liquefaction capacity of 9 mtpa. Out of that 9 mtpa, the two deals already provide for the sale of 7 mtpa and Cheniere hopes of selling the additional 2 mtpa through spot or short-term deals.

The deals bagged by Cheniere may mark the beginning of a turnaround in the U.S. natural gas industry. Already, five projects in the U.S. and two in Canada have written for construction and export licenses for LNG. Biggies like Shell (NYSE: RDS-A  ) (NYSE: RDS-B  ) and ExxonMobil (NYSE: XOM  ) want to pounce on the opportunity and export LNG to European and Asian markets, especially Asia, where prices of LNG are four times that of the U.S.

Foolish takeaway
With the BG and Fenosa deals in its collection, Cheniere is leading the way for others to follow. The two deals should enable Cheniere to secure the financing required to build the LNG terminal and help the company script a turnaround in its fortunes. The stock is worth watching out for.

To stay updated on Cheniere's LNG exploits, click here to add the stock to our watchlist service, "My Watchlist." It's free, and it helps you constantly stay updated on news and analysis on your favorite companies.

Fool contributor Amitabha Chakraborty does not own shares of any of the companies mentioned in this article. 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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  • Report this Comment On December 02, 2011, at 11:55 AM, Chorniki wrote:

    Please comment on the $125 million paid to CQP

    by Chevron and Total. How do these payments enter into the FCF picture? Thank you.

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