Cheniere Energy Is a Great Speculative Natural Gas Play

Cheniere Energy (LNG) has underperformed since legendary short-seller Jim Chanos disclosed that he was shorting the stock. While Chanos has benefited from his short position over the last few months, I think Cheniere Energy may be nearing a bottom, and it should be considered as a speculative long idea at current levels.

Operational Performance

Recently, Cheniere Energy launched the first LNG export cargoes from its Sabine Pass facility owned by the company’s secondary partnership Cheniere Energy Partners.
As the company is investing in exporting LNG from the United States and not just the concept of exporting, there are several catalysts that could provide a boost to the stock price.

Bearing in mind Cheniere Energy’s performance throughout the past few years, it can be clearly anticipated that how much money the company is going to make in the imminent quarters. Some of them are warranted, as it has various long-term, fixed price contracts in place that ensure a definite amount of sales.

As LNG export is a comparatively new thing in the United States, it is difficult for the stockholders to gaze at these costs and judge whether they are conventional, or substantial. However, if Cheniere Energy is able to keep its O&M costs and plant maintenance capital expenditures down, then we could possibly perceive the company’s margins magnifying further than its initial forecasts. That will positively enhance the profitability that the company was primarily projecting and would surely help to increase its struggling stock price.

At present, over 85 percent of the company’s export capacity is locked in with 20-year contracts it has signed during the last few years. The only actual variability is the cost of the gas and the 15 percent premium it duties on top of Henry Hub gas prices as a feedstock charge. If Cheniere Energy chooses to capitalize further in liquefaction trains at both Corpus Christi as well as Sabine Pass, then it could have around 9 million tons of LNG per year to trade in the open market.

However, if LNG demand and natural gas rates observe substantial surges in the few upcoming years, it will provide an additional boost to the shares that are still not added in Cheniere Energy’s prevailing estimates.

Hence, despite Jim Chanos’ bearish stance on Cheniere Energy, I think the stock is a great speculative long play at current levels. Cheniere Energy could shoot higher if LNG prices move north, which makes the company’s risk/reward ratio very favourable.
Published on May 20, 2016
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

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