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.

Corpus

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.

Risk-free for 30 days: The Motley Fool's flagship service
Tom and David Gardner founded The Motley Fool over 20 years ago with the goal of helping the world invest...better. Their flagship service, Stock Advisor, has helped thousands of investors take control of their financial lives and beat the market. Click here to sign up today.

Scott Percival has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers