A Promising Gas Play with a Massive Yield
03/22/2010 1:30 pm EST
Bryan Perry, editor of Cash Machine, says a master limited partnership has massive liquefied natural gas facilities and is putting up impressive earnings and a high yield.
Given that natural gas is one of the great energy waves of the future, I think that we should expand our exposure to the sector—especially in regards to liquefied natural gas (LNG).
Why is liquefying natural gas such an important process? Liquefied natural gas takes up about 1/600 of the volume of the original vapor, so it's much more cost-efficient to transport. In fact, LNG is no longer limited to just pipelines—it can be transported via ship, rail, and truck, thereby reaching the most remote areas where pipelines don't exist.
LNG is odorless, colorless, non-toxic, and non-corrosive, and has an energy density similar to gas and diesel fuels, while producing less pollution. Sounds "green" to me!
In addition, the US is expected to be a key growth market for LNG imports and exports as the demand for alternative energy grows. It is anticipated that the US will help LNG grow eightfold by 2015, with California being the main source of this increase—it currently imports 83% of LNG.
Because of all these positives, it is expected that world demand for LNG will double this year. Approximately 70% of the world's LNG trade occurs in the Pacific Rim, with the demand in Asian markets forecast to increase 80% by 2015.
That's why this month's high-yield pick is a new LNG master limited partnership (MLP) that was started in early 2007 and sports a current yield of 11.31%.
Cheniere Energy Partners, LP (Amex: CQP) is the owner and operator of the Sabine Pass LNG receiving terminal in Cameron Parish, Louisiana. The Sabine Pass is important to Cheniere's business because it's in a prime location (along the border of Texas and Louisiana) and has vast LNG capacity.
CQP recently reported its fourth-quarter and year-end 2009 earnings. The company's net income came in at $61.9 million and $186.9 million, or 37 cents and $1.13 per limited partner unit. In comparison, in 2008 the company had a net loss of $28.4 million and $78.3 million, or 17 cents and 48 cents per limited partner unit.
Thanks to such a strong quarter and year, CQP noted that annualized distributions to unit holders are expected to be $1.70 per unit. That's a forward distribution yield of 11.33% per unit.
The play on CQP is about demand for gas and not so much the price of gas, which is hovering at new multiyear lows again. As crude prices shoot higher towards $100 per barrel, attention will continue to turn in the direction of natural gas and LNG as cost- effective, clean, and reliable sources of industrial and residential energy use. The stock is trading at $15. Buy CQP under $17 for a one-year price target of $20.