What Is Driving Cheniere Energy Inc’s Stock Higher?

The natural gas market heated up over the past several months, and this development may have drawn more attention to natural gas companies such as Cheniere Energy (NYSEMKT: LNG  ) , a company primarily engaged in the liquefied natural gas business. Since the beginning of the year, the company's stock has jumped by over 28%. Besides these recent natural gas market developments, what could have contributed to the recent rally in shares of Cheniere Energy? And, looking forward, what could keep this company's stock rising?

Closing additional contracts
The company recently closed two LNG sale agreements related to its Corpus Christi project. Under these contracts, Cheniere Energy will sell 2.25 million tonnes of LNG per year. The Corpus Christi terminal is expected to start its operations by 2018-2019. These closed contracts reduce Cheniere Energy's risk because these are long-term contracts (20 years); they will provide a stable stream of revenue for the years to follow. 

Local market developments
Even though Cheniere Energy is first in line to export U.S natural gas, the U.S Department of Energy has recently approved for Jordan Cove Energy  to export 1.2 Bcf per day of LNG to free trade agreement countries for 30 years and 0.8 Bcf per day to non-FTA for 20 years. This company is one of 35, which has a license to export to FTA countries and one of seven to export non-FTA countries. These companies, however, will start to export after Cheniere Energy. Jordan Cove Energy isn't any different and plans to start exporting by 2019. But the rise in local competition could make it harder for Cheniere Energy to secure closing the remaining unassigned LNG related to its Corpus Christi project.

Global market developments
The global LNG market is expected to grow by 8% per annum in the coming years. One of the reasons for this steady growth is the rise in Australia's exports; some analysts even estimate this country could pass Qatar as the world's leading exporter of LNG. The U.S is also likely to become a prominent LNG exporter in the coming years, which could further increase the global LNG market. The steady rise in the LNG market will also improve the odds of Cheniere Energy signing contracts for the rest of its LNG operations in the Corpus Christi project.

In conclusion...
Cheniere Energy is progressing in the right path by closing contracts for its LNG terminals. The higher prices of natural gas are likely to result in higher revenue for the company. Finally, the ongoing expanding global LNG market will raise the demand for Cheniere Energy's LNG operations, which will lead to additional signed contacts for its Corpus Christi project.

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  • Report this Comment On June 02, 2014, at 5:48 PM, MarioCarbone wrote:

    Be aware of Chienere stock. And Lior you put in text a lot of thinks that are not true and facts that we shouldn't agree with.

    1. LNG didn't jump from begining of the year 28% but from 42$ to 68$, so this is aound 60%. The problem is not in the level of the jump, but in the facts that none economic fact support any improvment. All this sales of LNG, that wevlisten lately were included in price 2 years ago.

    So we talking here about pure speculative growth of stock.

    2. Actually economy of LNG become from the begining of the year worse. As we all know LNG don't use own gas but it is just terminal that suppose to buy cheap gas in US market, freeze it to minus 160 Celsius and sell it to The world.

    Problem now is that this gas is not so cheap any more and tomorow it price can become similar to prices in Europe where we want to export.

    Just for reminding. When the project have bagan the price in US was 3.5 $ per MBTU now is already 5$. And if US will change the coal factories to gas one then price could became similar to europe one, that are 10$.

    So where this export will then get margin for additional cost for making gas liquid (around 4$) and transport to Europe (0,5$)?

    Investment in facility is otherwise over 10bln$ and if we should return only assets it should have margin of 20%.

    According to that I believe this project is good for US independence and for making additional preasure on world LNG market but it will have serious problem to work without loses, not to mention to return money to investors.

  • Report this Comment On June 03, 2014, at 12:55 PM, MarioCarbone wrote:

    What is driving?

    Bubble. The stock is 300 as expensive as should be.

    The export bussines can't return this extent of capital that is bound in this stock. It will be E/P over 100.

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Lior Cohen

Lior has been a contributor for the Fool since 2012. His main interests are in commodities, and energy and materials companies.You can follow him on Twitter to stay up to date with his industry analysis. @tradingnrg

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