Last year was a historic one for Cheniere Energy (LNG -0.93%) and the country. In February, the company completed the first shipment of liquefied natural gas (LNG) from its Sabine Pass terminal in Louisiana, marking the first time the country exported gas from a non-Alaskan port. Since that time, the company has gone on to ship more than 100 cargoes to 20 countries as it ramps up the output from its three fully operational LNG liquefaction trains.
The initial ramp up of activities has already had a dramatic impact on Cheniere Energy's bottom line. However, it's just getting started since it recently began the commissioning process for a fourth train, and it has several more under construction and in development. Given this built-in growth and the opportunity it has to continue expanding, Cheniere could be a gold mine for growth investors.
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All aboard the profit growth train
With activity at its LNG trains ramping up over the course of last year, Cheniere Energy finally started enjoying the fruits of its labors. For example, after reporting negative $228.6 million of adjusted EBITDA in 2015, the company finally turned a profit, reporting $153.6 million of adjusted EBITDA for the full year after shipping 24 cargos from its Sabine Pass facility. That said, with a full year of operations at two of its LNG trains this year, and the ramp up of two more expected throughout 2017, the company expects its financial results to rocket higher this year. Its current guidance calls for consolidated adjusted EBITDA of $1.4 billion to $1.7 billion, which should leave it with $500 million to $700 million of distributable cash flow.
However, that's just the tip of the iceberg. Not only does the company have a fifth LNG train at Sabine Pass under construction, but it has two more underway at its Corpus Christi project, all of which should enter service in late 2019 and early 2020. Once all seven trains are operational, and at full capacity in the early 2020s, Cheniere Energy believes it can generate $3.8 billion to $4.1 billion of consolidated adjusted EBITDA on an annual basis. Meanwhile, after interest and other expenses, the company estimates that it can produce $1.5 billion to $1.7 billion of distributable cash flow. If it hits that target, the company would nearly triple its cash flow in as little as three years. Supporting those projections is the fact that Cheniere has secured 20-year take-or-pay contracts for 87% of its capacity with investment-grade counterparties such as oil and gas giant Royal Dutch Shell (RDS.A) (RDS.B).
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But wait, there's more
In addition to the seven LNG trains that Cheniere Energy already has under construction, it has two more fully permitted trains, one each at Sabine Pass and Corpus Christi. The company will likely move forward with construction of those trains once it secures enough commercial contracts to back the projects, which it has already partially done for Corpus Christi's third train.
Meanwhile, the company is making plans to continue expanding both facilities. It recently started the permitting process for two more trains at Corpus Christi. Further, it bought 500 additional acres adjacent to that site, including more water access, which gives it enough space to double its existing capacity in the future. Cheniere also holds the rights to more than 500 acres of land next to Sabine Pass, which is enough space to nearly double that facility's capacity.
The reason Cheniere has focused on keeping its future options open is because of the expectation that LNG demand will grow at a robust pace in the years ahead. According to its estimates, the world will need more than 200 million tonnes per annum of additional LNG capacity by 2030, which would nearly double the market's current size. Fueling this forecast is demand growth in emerging markets like China and India, which are seeking cleaner burning fuels to power their economy. In fact, India and China both plan to grow the share of gas in their energy mix from around 6% currently to about 15% in the years ahead.
While Cheniere will face completion for these volumes, it's well ahead of rivals given that it can more quickly expand its existing low-cost facilities, while it would take competitors much longer to build their higher-cost greenfield projects from scratch. Those costs have already caused delays and cancellations of several high-profile competing projects. For example, Royal Dutch Shell recently pulled the plug on its Prince Rupert LNG project in Canada, although the company will continue advancing another $40 billion LNG export project in Canada. Those projects were two of 20 proposed projects in Canada alone that are all on hold because of high costs and low oil prices. Given that the breakeven point of an expansion project by Cheniere is a third less than a greenfield project in Western Canada on a comparative basis, the company has a distinct competitive advantage over these competing projects, suggesting it could get an outsized share of the coming wave of LNG demand.
Investor takeaway
Cheniere Energy is on pace to grow at a rapid rate over the next several years as it finishes construction on the first wave of its LNG export capacity. These projects alone could triple the company's cash flow by the early 2020s. Meanwhile, the company has ample room to continue expanding to meet growing global LNG demand. Given that it can bring this incremental capacity online for a much lower cost than competing projects from rivals like Royal Dutch Shell, it should continue growing at a healthy clip for years to come, which could fuel massive gains for investors.
