Please ensure Javascript is enabled for purposes of website accessibility

Investing in Liquefied Natural Gas Stocks

Updated: Sept. 13, 2021, 4:15 p.m.

Natural gas is an abundant resource. It’s also cleaner and cheaper than other fossil fuels.

However, it has one major disadvantage. In its natural form, this gas must travel by pipeline, and pipelines can’t easily be built over oceans, making international markets hard to reach. Companies must turn natural gas into a pressurized liquid that gets loaded onto ships and carried to overseas markets.

Energy companies are investing billions of dollars in building liquefaction facilities in hopes of cashing in on the growth of international liquefied natural gas (LNG) demand. Here’s a look at what’s ahead for the sector and what companies are in the best positions to cash in on this trend.

Stay up to date...

This industry is rapidly changing in the current economic climate. Check out the recent articles feed below for the latest.

Icon person with chart

An overview of the LNG market

Global LNG trade reached 360 million tonnes (MT) in 2020, enough to power 725 million homes, according to industry leader Royal Dutch Shell (NYSE:RDS.A) (NYSE:RDS.B). While that was only a marginal increase from the prior year, LNG proved to be highly resilient given all the turmoil caused by the COVID-19 pandemic. India helped fuel that growth, with its exports rising 11% in 2020.

While the COVID-19 outbreak had some effect on the LNG market in 2020, including by delaying some projects, it hasn’t tarnished the long-term outlook. Shell still expects global LNG demand to nearly double to 700 MTs by 2040 from the 2020 level. Fueling that growth will be the cleaner-burning fuel’s importance in powering the economies of South and Southeast Asia, and its potential ascendance as a crucial bunker fuel for ships.

Several companies are investing to meet this future need by not only exploring for more natural gas resources but also by developing LNG export and import infrastructure. Those investments could pay big dividends for LNG-focused companies, provided demand grows as expected and pricing stays attractive.

What are the top LNG companies?

Many of the world’s largest LNG producers are state-controlled companies. Qatargas, which is owned by the government of Qatar, is the world’s largest LNG producer.

However, while state-owned companies are a force in the LNG market, they’re not alone. Several publicly traded energy companies rank among the LNG market’s biggest producers. Here are three top options for investors to consider:

Company What Makes It a Top LNG Stock?
Cheniere Energy (NYSEMKT: LNG) It’s the leader in producing and exporting LNG in the U.S.
Royal Dutch Shell (NYSE: RDS.A) (NYSE: RDS.B) It’s a world leader in LNG. Its integrated business includes gas supply, LNG export and import infrastructure, and a leading marketing operation.
Total (NYSE: TOT) It’s right behind Shell as a leader in the global LNG industry, controlling 10% of the world market in 2020.

Data source: Company investor relations websites

1. Cheniere Energy

Cheniere Energy (NYSEMKT:LNG), the first company to export LNG from the lower 48 states (in 2016), has become America’s leading LNG producer. It operates two LNG facilities along the U.S. Gulf Coast that export gas to foreign buyers. Cheniere was the second-largest LNG operator and fourth-largest LNG supplier globally in 2020.

Cheniere Energy’s LNG operations buy natural gas on the open market and have it shipped to its facilities via third-party pipelines, as well as those it operates. It then liquefies the gas and sells roughly 85% to foreign buyers like utilities under long-term fixed-fee contracts.

It makes the remaining supplies available to other buyers at the going market rate. The company’s contracted volumes provide it with predictable cash flow, which it uses to repay debt and invest in expanding its operations. It has new capacity on track to come online in 2021 and the second half of 2022.

Cheniere’s strategy of selling the bulk of its LNG via long-term contracts is a stabilizing force for the company as it navigates the challenges of the global energy market. Combine that with its visible growth, and it’s an intriguing U.S.-centric option for investors.

Also of note, the company is working to deliver even cleaner LNG. Through the use of nature-based credits, Cheniere supplied Shell with a carbon-neutral LNG cargo in 2020. It completely offset all emissions from the production and consumption of that LNG shipment. Initiatives like that should enable Cheniere to play an important role in the energy transition to cleaner fuel sources.

2. Royal Dutch Shell

Royal Dutch Shell (NYSE:RDS.A) (NYSE:RDS.B) was an early pioneer in the LNG market and has grown into a dominant force over the years. It vaulted to the top of the publicly traded leaderboard in terms of annual production capacity in 2016 when it acquired BG Group for $70 billion. As a result, the company now has LNG supply projects in 10 nations, as well as interests in a couple of regasification plants that turn LNG back into gas so it can flow through local pipeline systems.

Shell operates an integrated gas business. It not only controls supply by producing gas from a variety of fields but also operates LNG export facilities and markets LNG to customers around the world. This combination enables it to keep costs low so it can maximize the value of the LNG it produces.

The company has several integrated gas projects under construction to maintain and increase its LNG output through the early part of this decade. Meanwhile, it has many more in development to fuel growth in the years to come. Because of that, Shell will remain one of the driving forces in the LNG market.

3. Total

Total (NYSE:TOT) has made LNG a priority in recent years. The company acquired or developed several projects, which pushed it up the global rankings for production capacity. Its portfolio had the capacity to produce 10% of the world’s LNG volumes in 2020, making it the second-largest publicly traded LNG operator, behind Shell.

Like Shell, Total’s LNG operations are both integrated and global. It operates several production facilities around the world that supply gas to liquefaction complexes. It also runs a large-scale marketing and distribution arm that sells and delivers gas to customers. This integration helps it get the most value from the LNG it produces.

Total expects to continue expanding its LNG empire in the coming years. It is aiming to increase its capacity from 40 million metric tons per year in 2020 to 50 million metric tons per year by 2025. That growth could enrich its investors if LNG demand expands as expected.

LNG has a bright future

The world’s economies will need an increasing supply of cleaner-burning fuel in the decades ahead to help combat climate change. Due to its abundance and lower carbon emissions, natural gas appears poised to offer a growing share of that supply, with LNG giving it the global access needed to reach key markets.

While the sector hit a speed bump in 2020 because of the COVID-19 pandemic, the long-term outlook for LNG remains intact. Because of that, LNG stocks could do exceptionally well in the coming years as companies benefit from a global need for this vital fuel.

FAQs

What are the best liquefied natural gas stocks?

While state-owned companies are a force in the LNG market, they’re not alone. Several publicly traded energy companies rank among the LNG market’s biggest producers. Here are three top options for investors to consider:

Cheniere Energy: It’s the leader in producing and exporting LNG in the U.S.

Royal Dutch Shell: It’s a world leader in LNG. Its integrated business includes gas supply, LNG export and import infrastructure, and a leading marketing operation.

Total: It’s right behind Shell as a leader in the global LNG industry, controlling 10% of the world market in 2020.

Are oil and gas companies a good investment?

Oil and gas companies play an important role in helping to fuel the global economy. While the world is slowly pivoting to cleaner, renewable energy sources, the modern economy will continue to require fossil fuels for years to come. But trying to time the market, whether for oil and gas or for any investment, is risky at best. Add that to the other sector-specific risks, and you may decide to avoid the oil and gas industry altogether. 

What is liquefied natural gas?

In its natural form, natural gas must travel by pipeline, and pipelines can’t easily be built over oceans, making international markets hard to reach. Companies must turn natural gas into a pressurized liquid that gets loaded onto ships and carried to overseas markets.

Recent articles

GettyImages-1218789610

Equinor's Renewable Energy Business Is Progressing, but Questions Remain

This integrated oil major has a lot to prove if it wants to become a leader in the energy transition.

GettyImages-1210680587

Equinor's Oil and Gas Business Is Thriving. Will It Last?

This dividend stock is outperforming the market thanks to its strong asset portfolio.

GettyImages-539217509

Equinor's Recovery Is in Full Swing

This dividend stock continues to beat the market thanks to strong oil and gas prices.

GettyImages-157585704

This Cash-Gushing Energy Stock Just Raised Its Dividend by 20%

Equinor's business is thriving in today's attractive oil and gas market.

Solar and Wind With Urban Background

3 Breakout Stocks For The Second Half of 2021

These energy stocks have the industry's winds at their back.

featured-transcript-logo

Golar LNG Limited (GLNG) Q2 2021 Earnings Call Transcript

GLNG earnings call for the period ending June 30, 2021.

A person in a hardhat and holding a laptop near an energy facility.

3 Energy Stocks That Crushed Earnings This Season

Higher oil prices helped these oil companies deliver a gusher of earnings in the second quarter.

featured-transcript-logo

Cheniere Energy Inc (LNG) Q2 2021 Earnings Call Transcript

LNG earnings call for the period ending June 30, 2021.

featured-transcript-logo

ConocoPhillips (COP) Q2 2021 Earnings Call Transcript

COP earnings call for the period ending June 30, 2021.

featured-transcript-logo

BP plc (BP) Q2 2021 Earnings Call Transcript

BP earnings call for the period ending June 30, 2021.