The LNG Export Race Is On

One company emerges from the pack in the race for LNG export profits.

Erin McBride
Erin McBride
Apr 10, 2014 at 5:59PM
Energy, Materials, and Utilities

There have been major developments in the past month in the race for liquefied natural gas (LNG) export profits. And those developments will mean big profits for the companies and investors who get there first.

Houston-based Cheniere Energy (NYSEMKT:LNG) was the first to get Department of Energy LNG export facility approval, and now it has signed another major export customer, moving it into pole position.

According to the Cheniere website, Spain-based Endesa Generacion S.A. agreed to buy about 1.5 million tonnes per annum of LNG from Cheniere's Corpus Christi facility once it is operational. The agreement will extend for 20 years from the date of first delivery, with an option to extend. Deliveries are expected to begin as early as 2018. 

In December, Cheniere signed a 20-year agreement with the Indonesian state-owned company PT Pertamina. Not surprisingly, Cheniere stock continues to hit new highs. The stock has increased almost 28% in the last 12 weeks.

But in spite of Cheniere's achievements, the race is not yet won, or even over for the competitors.

The runner-up
Hot on the heels of Cheniere is Dominion Resources (NYSE:D), the Maryland-based utility company.

On March 31 the company announced that its wholly owned subsidiary Dominion Midstream Partners has filed a Form S-1 with the U.S. Securities and Exchange Commission (SEC) for an initial public offering of common units in a master limited partnership (MLP). (The new MLP expects to apply for a listing on the New York Stock Exchange under the ticker symbol DM.)

The MLP will benefit from and include all the outstanding preferred equity interests in the Cove Point LNG import and regasification plant in Maryland, as well as a 136-mile pipeline that connects the Cove Point plant to onshore interstate pipelines.

Dominion Midstream should also anticipate a burst of environmental protest against the plan. Environmental groups energized by their success at delaying -- and possibly killing -- the Keystone XL pipeline have taken aim at the proposed liquefaction plant.

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As is common with MLP spinoffs, Dominion will retain 100% ownership of the general partner of Dominion Midstream and 100% of the incentive distribution rights. Dominion will also retain a majority of the common units in the new MLP.

Dominion's fourth-quarter 2013 earnings beat the top line but missed on the bottom. Operating revenue beat estimates by 4.8%, and the company enjoyed higher sales. But fourth-quarter adjusted earnings per share were only $0.80, $0.08 below analyst estimates. The company affirmed its long-term earnings growth of 5%-6% per share.

Dominion is still a great long-term utility investment, especially with recent developments in wind and solar energy. The stock has gained nearly 20% over the past year and continues to climb. The forthcoming MLP will definitely be one for energy investors to watch.

And the bronze goes to Canada!
In the back of the pack, but gaining momentum, is the newest contender in the LNG race: Canadian company Veresen (TSX:VSN) received Department of Energy approval on March 24 for the proposed Jordan Cove Energy Project in Coos Bay, Ore. It is the first approval for an Asia-focused export facility.

ExxonMobil (NYSE:XOM)Chevron, and CNOOC are among companies that have proposed projects to export LNG to Asia, where gas prices are five times higher than in North America.

But the export approval may not be reason enough to invest with Veresen. The company is trading at 65 times trailing earnings, and has more than $1.2 billion worth of debt on the balance sheet.

The Jordan Cove facility joins other approved facilities, including the Freeport LNG Development in Freeport, Texas. ExxonMobil is in a partnership with Qatar Petroleum International to own and operate the Golden Pass facility, also in Texas. And Sempra Energy has received approval for the Cameron LNG terminal in Hackberry, La.

As of March 31, there are seven approved LNG export facilities. The companies with existing approvals already are lengths ahead in the LNG profits race, as are the investors who get in early.