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A Booming Business in LNG

05/17/2019 5:00 am EST


Mike Larson

Editor, Weiss' Safe Money Report and Under-the-Radar Stocks

The U.S. is experiencing an energy boom. But don’t picture gushers of crude oil spraying skyward over the Texas flatlands. Instead, think LNG — Liquefied Natural Gas, suggests Mike Larson, growth and income expert and editor of Safe Money Report.

If you’re not familiar with the term, LNG is simply natural gas that has been cooled to an extremely frigid minus-260 degrees Fahrenheit. This requires special processing facilities with production lines known as “trains.”

At such a low temperature, LNG takes up much less space than vapor gas. It’s also non-flammable. This allows LNG to be safely stored and transported using tanks, docks and ships designed for the process.

Because it’s viewed as a lower-priced, cleaner-burning fuel, natural gas is enjoying strong demand in many parts of the world. The U.S. is also capturing a larger share of the global gas market thanks to our nation’s enormous gas reserves and billions of dollars in LNG capital investments.

In fact, the U.S. should have the capacity to produce 8.9 billion cubic feet per day (Bcf/d) of LNG by the end of this year, according to the Energy Information Administration.

Not only would that be up sharply from around 3.6 Bcf/d in late 2018, it would also be enough to make America the third-largest LNG exporter globally (behind Australia and Qatar).

Leading the way is Cheniere Energy Partners LP (CQP) and its sister company Cheniere Energy (LNG). CQP owns and operates the “Sabine Pass” LNG receiving, processing, storage and shipping facility in Cameron Parish, La., just four miles from the Gulf of Mexico.

The facility already has four fully operational trains producing approximately 4.5 million tonnes per annum (mtpa) of LNG each. A fifth is in the process of being brought online, and a sixth is permitted and undergoing initial site development.

The company hasn’t (yet) reached a final investment decision on that train, as it’s in the process of securing financing and customer contracts. Now that CQP has transitioned from the planning and construction phase to full-scale LNG commercialization, its sales and earnings are rising nicely.

The company shipped 270 cargoes of LNG in 2018, generating $6.4 billion in revenue and $2.5 billion in adjusted EBITDA. All told, CQP has sent LNG to 31 separate countries and regions worldwide.

Of the two Cheniere organizations, CQP is the one that features generous dividends because it’s structured as a Master Limited Partnership. Its dividend rose 27% year-over-year in 2018, and just hit 60 cents per share in the most recent quarter. That’s equivalent to an indicated yield of around 5.6%.

Throw in the fact our Weiss Ratings system has graded CQP a “Buy” since August 2018, and you can see why I believe it will be an attractive addition to the Bedrock Income Portfolio.

There is, however, one short-term issue I’m watching: China. It’s a major player in the global LNG market. There’s always a chance that policymakers there could respond to U.S. trade pressure with, say, punitive tariffs on U.S. LNG imports.

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