Cheniere Energy (LNG): 2019 Top Picks' Mid-Year Update

07/09/2019 5:00 am EST

Focus: REITS

Tony Daltorio

Editor, Investors Alley Premium Digest

Tony Daltorio, contributing editor to Growth Stock Investor, chose Cheniere Energy (LNG) as a best investment opportunity for 2019. The stock rose 18% in the first half of the year. Here's his latest update on the energy play.

Despite the ongoing trade war between the U.S. and China, the number one exporter of LNG (liquified natural gas) from our country — Cheniere Energy — is doing well.

The company is well-positioned to be the exporter of the incremental liquefied natural gas supplied to the global market over the next few years, particularly as demand ramps up from China. Recall that in March 2018, at China's annual parliamentary meeting, one sentence was repeated again and again: “We will make our skies blue again.”

The Chinese are finally serious about curbing the rampant pollution in their country. That has led to China markedly cutting back on the use of coal for both power and heating purposes. As a substitute for coal, China is placing a major emphasis on natural gas.

China's LNG imports jumped 46% in 2017 to 38.1 million metric tons. This was the first time that imports of LNG exceeded gas imports delivered by pipeline. In 2018, LNG imports soared to a record 53.7 million tons, a rise of almost 38% compared to 2017 when China surpassed South Korea as the world’s second largest LNG importer.

China is expected to surpass Japan as the number one LNG importer by the end of the next decade. The International Energy Agency forecasts China's natural gas demand will rise upward of 4% a year through 2040, boosting LNG prices over the long-term.

If trade tensions cool, the bulk of Chinese LNG demand growth will be met by U.S. gas supply, with Cheniere leading the way.

That's because the company's expansion plans are proceeding smoothly. Cheniere should have 31 million to 34 million metric tons per year on line in 2020 and 40 million to 44 million by 2022. About half of our country's LNG export capacity will be in operation or under construction by Cheniere. 

Bottom line – Cheniere will be the second largest operator of LNG liquefaction capacity in the world by 2020.  In 2017, the company loaded over 200 LNG vessels, with another 270 vessels in 2018. Significantly, since early 2018, Cheniere has signed long-term deals for over eight million metric tons annually.  

The world's move away from polluting coal to cleaner-burning natural gas is a major macroeconomic trend. This means any weakness in Cheniere' stock price is a buying opportunity.

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