Private equity firms have their eyes set on the energy sector, with deals such as El Paso-Apollo Global, Samson Investment-KKR, and the most recent between Cheniere Energy Partners (AMEX: CQP) and Blackstone (NYSE: BX). For me, what sets the last one apart is the optimism it has fostered. Late last month, Blackstone announced an investment of $2 billion in Cheniere's Sabine Pass natural gas terminal.
The journey so far...
Falling natural gas prices in the U.S. due to a supply glut have made companies look to export gas in the form of liquid natural gas. And with LNG in Europe and Asia fetching four to six times what natural gas gets in the U.S., that explains why Cheniere chose to expand its import terminal to allow for exports. In fact, the terminal will be the first such facility in the U.S. in 40 years.
With natural gas in abundance, U.S. oil companies are really eager to tap the burgeoning LNG market overseas. And Sabine Pass being the first such facility definitely puts Cheniere ahead of the lot.
The Department of Energy's approval and new export contracts toward the end of 2011 started pumping life into the Sabine Pass terminal. The first up was the one with Britain's BG Group, then came Spain's Gas Natural Fenosa, along with India's GAIL pitching in as well. All these deals are long-term, ranging from 20-30 years, which means the project is locking in a good amount of its capacity. In fact, Cheniere has even got Chesapeake (NYSE: CHK) on the decks to supply 500 million cubic feet per day of natural gas. With the supply chain and demand set, what needed attention was raising money to build the project.
...and the hope for the future
Cheniere Energy Partners and its parent, Cheniere Energy (AMEX: LNG), likely could not have done it on their own. Cheniere Energy has lost money steadily for more than a decade, and both entities carry a hefty debt load. Moreover, the parent company has a $298 million interest payment due in May. Construction cost of the project is estimated to be around $4.5 billion to $5 billion. With Blackstone pitching in, existing creditors might also be encouraged to lend further. This gives me hope.
The takeaway
The Blackstone investment has made investors more confident of the terminal's future -- and the company's, too. Things are falling in place for Cheniere in time, and it looks all ready to lead U.S. LNG into exports. Keep a tab on this stock as the story unfolds on your personalized Watchlist.
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