A few weeks ago I wrote an article about how we can better use the natural gas that is so plentiful in this country. Two of the companies that I researched were Cheniere Energy (NYSEMKT:LNG), and its subsidiary Cheniere Energy Partners (NYSEMKT:CQP). When I wrote the article, earnings had just been announced, and both companies lost money. However, I felt the investment in these stocks was still valid based on their bright future. Cheniere Energy partners owns a natural gas processing plant in Sabine Pass, Louisiana which is capable of exporting Liquid Natural Gas to countries that are desperate for it. That plant is scheduled to begin production in 2015. The biggest problem the company faces is the cost of building the export terminal and the infrastructure needed to convert natural gas into liquid. However because this project has so much potential they are beginning to get the capital needed:
HOUSTON, May 24, 2012 /PRNewswire/ -- Cheniere Energy Partners, L.P. ("Cheniere Partners") (NYSE Amex: CQP) announced today that it will launch the syndication of two new credit facilities totaling approximately $2 billion with a bank meeting to be held on Tuesday, May 29th, 2012. The new senior secured syndicated credit facilities include approximately $750 million at Cheniere Partners and approximately $1.3 billion at Sabine Pass Liquefaction, LLC ("Sabine Pass Liquefaction"). Net proceeds from the Cheniere Partners credit facility will be used to fund the acquisition of the Creole Trail Pipeline, to pay for pipeline improvement and modification costs, and for other general business purposes. Net proceeds from the Sabine Pass Liquefaction credit facility will be used to fund the costs of developing, constructing and placing into service the first two liquefaction trains of the Sabine Pass LNG liquefaction project (the "Liquefaction Project").
Even with the financial crisis last fall, both stocks are way up for the year. The negative earnings would normally make investors run for the hills. But instead they are lining up to get in on this deal. The reason, according to the Wall Street Journal, is that it is very difficult to get government approval to export natural gas to countries like Japan that do not have a free-trade agreement with the United States:
Cheniere Energy Partners LP, already has a license to export to nations lacking a free-trade agreement with the U.S. It has lined up customers in Britain, Spain, India and South Korea and plans to begin exports from Louisiana in 2015....
Earlier this month, Houston-based Cheniere agreed to sell $1.5 billion worth of stock to investors affiliated with Blackstone Group LP and said proceeds would help fund the terminal. A week earlier, Cheniere said it would sell $468 million worth of stock to Temasek Holdings, a Singapore investment company, and U.S. private-equity investor RRJ Capital to help fund the project, expected to cost $4.5 billion to $5 billion in its initial phase.
Some people say, according to the article, that by exporting natural gas, the price in the United States will jump. This is not horrible news for American gas producers that are sitting on such a huge supply right now. And as long as the glut continues, producers will cut production to soak up the excess supply. One of the big critics of the plan is Rep. Ed Markey (D., Mass.) who does not want gas to be exported.
Our country has been dependent on foreign oil for decades. This is a chance to hire Americans to produce an energy product that can be used here, and exported. Right now natural gas is selling in Japan for $16 per mmbtu. Yet in the U.S. it costs only $2.64 per mmbtu. To not allow these companies to make a huge profit by selling to an ally like Japan is socialism at the very least. That would be like China not allowing the export of their cheap manufacturing ability, so they could keep it cheap for their citizens who are not using it. Even as the price of the gas goes up here, so will our standard of living.
Right now Cheniere has a big jump on other companies who are applying to the government for the ability to export liquid natural gas. The WSJ mentioned two American gas companies that will both partner with Japan: Sempra Energy (NYSE:SRE) and Dominion Resources Inc. (NYSE:D) which can be ready to ship Liquid Natural Gas by 2017. That is if they get the Department of Energy's approval they need before then.
To buy either of the Cheniere stocks right now would not guarantee a short term gain. The real earnings will start in 2015 when the exports begin. But if you want to invest for the future, the shares should be a lot cheaper right now; versus three years from now.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.