Natural gas prices are surging all over the world. Between extreme heat in many parts of the world driving energy demand higher, and Russia's threats to cut supplies to Europe -- not to mention sanctions against Russia following its invasion of Ukraine -- demand for reliable sources of natural gas is roiling the world's energy markets.
The challenge with natural gas is that, unlike energy products made from crude oil, such as gasoline and jet fuel, natural gas is more difficult and expensive to transport long distances, especially overseas. That's because it's a gas at ambient temperatures, and to get large volumes into containers to ship, it must either be compressed to very high pressures or liquefied. But with surging energy prices and increasing global demand to meet the world's power needs, it has become cost-effective to liquefy and export it. One company that's led the way here is Cheniere Energy (LNG -4.10%), the largest pure-play liquefied natural gas (LNG) company in North America, which has also been an extraordinary investment, up more than 80% in the past year and up tenfold over the past decade.
But has the best money already been made in Cheniere? What other LNG stocks are out there, worth considering? Keep reading for some ideas.
Big Oil stocks are the safest way to invest in LNG
While Cheniere is the biggest pure-play LNG stock, some of the largest multinational supermajors are the biggest players in LNG. Two in particular, Shell (SHEL -0.83%) and Total Energies (TTE -1.71%), are among the largest, with significant market share in global LNG.
For investors looking for some exposure to not just LNG, but also natural gas more broadly -- both also use it in their petrochemical manufacturing, and produce significant amounts that they sell into global energy markets -- the smartest way to do so may be these oil and gas giants. In addition to natural gas, both are also integrated companies, operating significant oil and gas production, pipelines, refining, and end-user marketing businesses. As a result, they may not have the upside as pure plays, but in the energy markets, being diversified also means less risk of collapsing when prices eventually fall.
Willing to take on more risk? 2 pure-play LNG stock ideas
If you do want to consider pure plays, two names to look at are Excelerate Energy (EE -3.99%) and Tellurian (TELL -3.37%). Excelerate owns and operates floating vessels that are used to store LNG and then regasify it and feed it into pipelines that supply gas to end users. This business is particularly compelling, as it provides the services that take the LNG that's shipped from where it's produced, increasingly North America, Australia, and other countries, and gets it back into the gaseous state that is cost-effective to store, move, and supply it. The company recently announced a deal to supply a floating storage and regasification unit on a five-year contract in Germany. Excelerate already generates steady revenue, is growing it quickly, and has a history of generating positive operating cash flows. It's well run, but it will face a lot of competition, its vessels are very expensive, and it will probably require additional debt to fund future expansion. Managing its balance sheet as it grows is something investors need to watch very closely.
Tellurian, meanwhile, is by far the highest-risk stock of this group, as it's still by and large a start-up with a great idea, all the necessary regulatory approvals, and some natural gas-producing assets. But the reason to own Tellurian isn't those gas wells, but rather the LNG export facility it has the approvals to build but has yet to fully move forward with building.
In short, the Tellurian thesis is that its Driftwood facility will be a low-cost source of LNG for buyers, while Tellurian's proximity to low-cost gas resources -- both some it produces and much that it will buy from other sources -- will give it some cost advantages. And that should result in higher margins, stronger cash flows, and big returns for investors.
At least that's the plan. The problem is that, after a number of years of planning, pre-engineering work, and long-term supply contracts with buyers, it still hasn't lined up the $15 billion to $25 billion -- depending on the final size of the facility -- it will need to build it. And until it lines up the funding, and we can see the terms and the cost of that capital it's hard to value the company. The biggest risk is it never gets built, and the small bit of natural gas acreage investors end up with as the only asset doesn't support the existing share price. The company's co-founder, Charif Souki, also founded Cheniere Energy. So we have someone deeply involved who's done it before.
But a successful second act is not a given. Invest according to your risk tolerance.