Energy Cheniere (LNG 1.47%) benefits from a huge opportunity in the liquefied natural gas industry. In this Motley Fool live excerpt from “The High Energy Show”, recorded on June 7Fool.com contributors Tyler Crowe and Jason Hall explain why this stock could be a solid choice for long-term investors.
Tyler Crowe: Cheniere Energy is the first, and I believe still the largest exporter of liquefied natural gas in the United States, they have two facilities, one in Louisiana and one in Houston. The underlying thesis for them is that with the advent of shale, we had a ton of natural gas. I was looking for the whimsical idiom, but couldn’t find it in time. He made natural gas so cheap that we can liquefy it, which is an expensive process, ship it halfway around the world and still be cheaper than what they pay for natural gas in China, at what are called the Rotterdam stock exchanges. Basically like what the price for it in Europe is big in the Netherlands.
This price disparity has been a huge opportunity and the sheer amount of natural gas we produce from shale has made this business lucrative. Cheniere Energy could, there’s a chart right there. Here tells you everything you need to know about what shale has done to natural gas or shale has done to natural gas production in the United States. We have almost doubled our production in 10 years. When you look at them, it is difficult to find your way around.
Jason Hall: I think at the low point from 2000 to 2005, we thought we were out of gas. Cheniere was building an import facility.
Tyler Crowe: Yeah. They pivoted really fast because they were like, shit, this shale stuff is really going to blow us up. The good thing about Cheniere, and if you’re thinking of investing in that is that they have a facility, that’s throwing boatloads of money that’s backed by 20 to 30 year contracts where the price actual merchandise is not even tied to their income because they do what is called flat rate processing. Then I believe it’s a Henry Hub plus 15%. Basically, it’s as if the consumer paid the price of gasoline plus 15%. Then they also have a flat fee to do so. Then I think there is also an annual fee. Their income is extremely stable to start with and this allowed them to start reducing the amount of their debt, as it was one of the big problems when they started. This allows them to allocate to modest expansions of their existing facilities. So you’re getting some growth there and they’ve got a nice dividend that’s probably going to last 20 years.
Is LNG an investment over 50, 60, 70 years? I don’t know, but make an investment that will last 70 years. I don’t think we can pick a single company on this list and say that in 70 years it will be great. If I make an allocation decision as an investor and see like our 5-10 year window or something can be extremely profitable. I think it’s a good window, and Cheniere Energy lends itself very well to it.