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 (NYSE: CHK  ) and SandRidge Energy (NYSE: 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 (AMEX: 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 (AMEX: 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.

Ambitious plans
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.

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Fool contributor Isac Simon owns no shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Chesapeake Energy. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (3) | Recommend This Article (16)

Comments from our Foolish Readers

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 March 31, 2012, at 4:23 AM, strelna wrote:

    My dear Mr. Simon! You simply cannot say that Cheniere is 'worth the risk in my opinion' when it emerges beneath that the opposite is the case: it has not been worth the risk in your opinion and it is a risk you have not taken!

    Now there may one or many of a dozen possible, extremely good, external reasons why it is a risk you have not taken. But the form of words is wrong and this habit is far too prevalent, where an article exhorts the readers to buy while the author keeps his wallet firmly in his pocket!

    I suggest a different formula, much more accurate: 'There will be many who will find this company attractive enough to buy although I am not of their number, preferring for various reasons to hold stock in other companies and not divert funds elsewhere.

  • Report this Comment On April 01, 2012, at 1:30 PM, DirkHolthusen wrote:

    I bought into this stock early but sold several weeks ago due to "political risk."

    The concept is excellent and I believe they have enough funding (with contracts) to make through to 2015 when first exports are planned. However, construction is now delayed as the Company awaits final approval for export.

    Approval may be withheld as the current Administration does not like hydrocarbon drilling. There is more than enough Nat Gas to cheaply supply the USA requirements with more than enough left over for export, but this would only happen if production in the shale areas continued with additional wells and infrastructure.

    If final approval is not forthcoming in the next 30 days, I believe share price will take a dramatic drop.

  • Report this Comment On April 01, 2012, at 3:41 PM, Jackts wrote:

    Agree strongly with Dirk.Have made significant gains in lng by being in and out around the catalysts that were fairly easy to spot coming.Everything was going fine until the Sierra Club tried to throw a wrench in the works just before the biggest (and last for awhile) catalyst.

    Now getting back in before the last catalyst is resolved has become the the biggest gamble of them all .I'm a believer that the sierra club is not going to be successful here it's still kind of scary.Their trumped up claims are just being used to cover for thir real goal of the destruction of capitalism but in the curren climate you never know.would love to hear other thoughts .thanks.

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