Why Revenues at This Energy Company Could Skyrocket

How much future LNG production has Cheniere sold already, and what is it worth?

Jul 28, 2014 at 10:17AM

When people start lining up outside your lemonade stand before you've even sliced your first lemon, you know you're in business. That's pretty much what's happening with Cheniere Energy and its master limited partnership (MLP), Cheniere Energy Partners. Cheniere is developing two liquefied natural gas (LNG) plants on the U.S. Gulf Coast, and the sales agreements just keep piling up.

Based in Houston, Cheniere owns and operates the Sabine Pass LNG terminal and Creole Trail Pipeline in Louisiana. Through Cheniere Energy Partners, it is currently constructing a six-train liquefaction facility at Sabine Pass with a planned capacity of 27 million tons of LNG per year (MTPA). Cheniere has also designed and is seeking regulatory approval for a second such plant near Corpus Christi, Texas with a capacity of 13.5 MTPA of LNG. The Corpus Christi facility could be delivering LNG as early as 2018.

Sales are rolling along
On June 17, Cheniere signed the fourth LNG sale and purchase agreement (SPA) in less than eight weeks, and the seventh since April. This one was with Électricité de France for 0.38 MTPA from the planned Corpus Christi plant. This may not sound like a big slice of the overall capacity, but the table below shows how all these slices can add up.

BuyerSabine Pass 1&2Sabine Pass 3&4Sabine Pass 5&6Corpus Christi
- BG Gulf Coast LNG, LLC 4.20 1.30    
- Gas Natural Fenosa 3.50      
- KOGAS   3.50    
- GAIL (India) Ltd.   3.50    
- Total Gas & Power N.A.     2.00  
- Centrica plc     1.75  
- PT Pertamina       1.52
- Endesa, S.A.       2.25
- Iberdrola, S.A.       0.76
- Gas Natural Fenosa LNG SL       1.50
- Woodside Energy Trading Singapore       0.85
- Électricité de France, S.A.       0.77
Total Sold (MTPA) 7.70 8.30 3.75 7.65
Planned Capacity (MTPA) 9.00 9.00 9.00 13.50
Percentage Sold 86% 92% 42% 57%

Table Data from Cheniere Energy

The twelve customers listed in the table have signed SPAs accounting for nearly all of the planned production from the first four trains of the Sabine Pass plant, and nearly half of the other two trains. Capacity from the Corpus Christi project is already more than half sold, although the facility is still only on the drawing board.

The demand is there because of several factors in both Asia and Europe. In Asia, lack of pipeline infrastructure in places like Singapore, the need for a cleaner burning fuel in smog-bound China, and the desire for an alternative to nuclear power in Japan all bode well for LNG. Also, the expansion of the Panama Canal will bring Asian markets closer to the U.S. Gulf Coast. In Europe and other spots where geopolitical instability may threaten pipeline gas supplies to some regions, strategic energy alternatives like LNG deliveries are a flexible solution.


Courtesy Cheniere Energy

Cheniere's customers are diversified throughout both areas. Fenosa and Endesa operate in Europe and Latin America, while Iberdrola and Électricité de France operate mainly in Europe. Pertamina is a state-owned energy company operating in and around Indonesia, and Woodside is Australia's largest independent dedicated oil and gas company.

Woodside is also a leading producer of LNG, but will also be buying from Cheniere. That's likely because most liquefaction plants planned in North America gain a cost advantage from the existing infrastructure. Thus, Woodside may be able to realize a lower cost by buying and shipping LNG from the Gulf of Mexico, as opposed to adding capacity in Australia or elsewhere.

A huge game changer
Cheniere has been losing money, but investors have been bidding up the stock for the past two years. A look at how sales from the two LNG projects could dwarf the company's current revenues explains why. Sabine Pass and Corpus Christi would have a combined capacity of 40.5 MTPA per year. A metric ton of LNG can provide about 47.9 million British thermal units (MMBTU) of energy, so even at low North American prices of about $5.00 per MMBTU, this translates to about $9.7 billion per year in sales.

That's powerful because Cheniere's consolidated revenue in the most recent quarter was $67.55 million, or about $270 million annualized. Sales from the two LNG projects, assuming full capacity and $5.00 per MMBTU, would be about 36 times current revenue. The market is currently pricing Cheniere at about 60 times sales, but with the LNG revenue, that multiple could actually be less than two.

Should Fools rush in?
The stock market is forward-looking, pricing in expectations for the future, and Cheniere is a great example of that. Investors should remember that unexpected factors such as regulatory issues can delay or derail a project, so keep an eye out for news of progress on these facilities.

Investors interested in tax-deferred current income would be most interested in the 5.30% yield of the MLP, Cheniere Energy Partners. For others, the corporate general partner would be appropriate. Either way, this could be a company with a big future.

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