The company plans to be one of the leading domestic LNG exporters. It owns a 61% interest in Cheniere Energy Partners, L.P. (CQP), which owns the Sabine Pass facilities. It also owns the Cheniere Creole Trail Pipeline, L.P., Corpus Christi Liquefaction, and Cheniere Marketing companies.
With huge supplies and historical low prices for natural gas, Cheniere Energy, along with a company like Clean Energy (CLNE), plans to take advantage of the opportunity by supplying new markets with the abundant fuel.
While Clean Energy wants to build a domestic natural gas transportation highway to supply fuel for vehicles, Cheniere Energy wants to liquefy the natural gas and export it to international markets where the prices are significantly higher than in the U.S. The question remains whether the cost will remain competitive by the time the Sabine Pass LNG facility is ready to export gas in 2015.
Sabine Pass Liquefaction Project
The main thrust for the company is the development of four LNG trains in Cameron Parish, LA, at an existing 1,000-acre facility. It currently includes a 40-foot ship channel with two berths, five LNG storage tanks, 4.3 Bcf/d peak regasification capacity, and 5.3 Bcf/d of pipeline interconnection.
The company is in the process of constructing trains 1 and 2 while trains 3 and 4 will start in late 2013. The plan is for train 1 to start production in late 2015 with each subsequent train ready six to nine months after the previous one. By 2017, all four trains should be in production with 18 mtpa of capacity serving locked in contracts of 16 mtpa. The company will have the ability to market the additional 2mtpa at attractive market rates.
The company reported the following positive highlights in the investor presentation:
- Sabine Pass Liquefaction project has significant infrastructure in place, including storage, marine, and pipeline interconnection facilities providing a cost advantage for Trains 1 & 2.
- CPQ estimated cash flows to soar as the four SPL Trains come online with the 2017E at $1,630M.
- With Trains 1-4 in production, CPQ expects a distribution per unit of $3.10.
- Cheniere Energy expected to generate $990M in net cash flows by 2017.
- The Cheniere Marketing arm could produce up to $1B in additional cash flow for Cheniere Energy assuming net margins of up to $10.00/MMBtu on 104 Bcf/year.
- Corpus Christi Liquefaction project provides additional upside with an ideal location close to the Eagle Ford shale and the Gulf coast. The project involves 3 Trains at roughly 13.5 mtpa capacity.
- Global LNG import demand is expected to grow from 303 mtpa in 2015 to 511 mtpa in 2030 or approximately 1 new CCLNG every year. Asia demand is expected to account for the majority of that demand at 310 mtpa in 2030.
- Board of Directors expected to commence dividends in 2016 at $2 annualized rate.
- Net operation loss is expected to increase until commercial start of Train 1. The company is not expected to be a taxpayer until at least 2021. The projected NOL carry forward at the end of 2012 is $1,427M.
- The company will have slightly negative cash flow until LNG Train 1 is in production in 2015.
- Cheniere Energy Partners must raise roughly $600M additional equity and at least $5B in debt for Trains 3-4.
- Significant LNG projects coming online in Australia by 2015 could impact pricing in Asia. Curtis, Australia Pacific, and Gladstone are all expected online by 2015 with Wheatstone undetermined.
- Even at $3.00/MMBtu for gas supply, the costs for delivered LNG are expected to exceed $7 in the Americas and Europe and over $9 for Asia.
Limited Time Profits
The biggest problem with the export concept is that the liquefaction and transport charges to Asia (largest demand market) make the costs of the delivered LNG significantly higher than the commodity costs.
The Wall Street Journal ran an article showing how the margins quickly disappear with the natural gas futures prices that trade in the $5-6 range for 2016 an beyond.
Ironically the demand from exports could push the prices high enough to make exporting unprofitable. Not to mention expanded manufacturing and chemical company demand by 2015 and beyond could further make the trade unprofitable. Even the Clean Energy plan for more natural gas used as a domestic fuel could impact the ability to export the commodity.
Energy Department Export Report
The Energy Department announced today another delay in releasing an LNG export report. The report was commissioned by the department to examine the economic impact of LNG exports. The contention exists between manufacturers that want cheap fuel supplies and drillers that want access to expanded markets where prices for natural gas are significantly higher.
The department will not make any further decisions on allowing further LNG exports until the analysis is complete. In theory, this move gives Cheniere an advantage in the market since it already has approval for the Sabine Pass project though the Corpus Christi project clearly won't get any approvals until this issue is resolved.
This effectively punts the decision until after the U.S. election.
Valuing the stock is very difficult considering the timeline for considerable revenue isn't until 2016. At that point, the company expects to pay annualized dividends of $2. Not to mention that a huge part of the profits depend on the ability to sell the additional LNG capacity at profitable margins.
The company is leading the development of an LNG exports that could revolutionize the domestic natural gas market. With 20-year contracts, the company has a huge opportunity to create a stable cash flow stream for investors.
Investors need to keep this stock on the radar, but it is too difficult to invest at these levels knowing the natural gas landscape will be drastically different in the 3 years it takes the new facilities to start production.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CLNE over the next 72 hours.
Additional disclosure: Please consult your financial advisor before making any investment decisions.