It’s Happening… So Buy This LNG Stock

LNG

Last Friday, I discussed the insane decision by Russian troops to start bombing nuclear power plants. I’m sleeping a little better now, but my friend in Switzerland told me that he was handed a leaflet in his town reminding him to pick up potassium iodide pills – just in case he needs them. I also promised to dig into the liquefied natural gas (LNG) export space.

As I noted, the European Union has imported a significant amount of natural gas from Russia in recent years. Last year, they received 380 million cubic meters of gas by pipeline from their neighbor every day. Russia was 45% of the EU’s total natural gas imports last year. European nations have moved to wean their reliance on Russian natural gas. But someone has to step up. And it appears that the United States and its vast natural gas resources will receive the first “try out” in this new environment. 

Now This is Incredible

In February, I listened to a conference call from a company that produces small munitions (guns) in the United States. In a business where demand outstripped supply, its leaders issued an incredible figure. The company, Ammo Inc. (POWW), had sold out all of the guns it planned to produce in 2022 (in just two months). Wow… that’s amazing. 

But Cheniere Energy (LNG) – which produces liquefied natural gas through its Sabine Pass LNG facility in Louisiana and another Texas facility – has an even bigger number. It has sold out all of its LNG production through the Sabine Pass facilitythrough the 2040s. That’s right. By the time I’m able to start collecting social security, this company’s facility will still be fulfilling LNG contracts that it signed this decade. 

The analysts are just going nuts about this company. They’re raising the price target like a gas station attendant jacking up fuel prices at the sign during a hurricane.The company is currently the second-largest producer of LNG in the world and first in the United States. The Sabine Pass facility pumps out 30 million tons of fuel a year, and elevated prices allow it to lock in longer-term contracts as nations rush to secure supply. Cheniere experienced a significant growth phase over the last decade. 

Now, it’s focused on paying down debt, gaining long-term contracts, and concentrating on slashing expenses. All of this will produce an investment-grade credit rating that could take the stock to new heights. The company will need to pay off about $30 billion in long-term debt. However, that shouldn’t be an issue if the demand remains robust. And it should.

The Future Looks Bright for LNG

Nations are doing all they can to ween off Russian energy. But they are also in the long-term decarbonization process as they turn away from dirtier, more carbon-intensive fuels like coal. Natural gas produces about half the CO2 emissions of coal and can act as an attractive bridge fuel in decarbonization. 

In addition, that net-zero carbon goal isn’t likely to happen until at least 2050 – and may require two additional decades beyond any deadline. Perhaps this is one reason why the European Union has recently changed its views of natural gas and nuclear energy – assigning both a “Green” rating as they attempt to keep energy prices from getting out of control. 

Investors looking for a solid, long-term play in the natural gas play should look to build a position in Cheniere and never look back. This will be the leader in the U.S. LNG space for decades and shouldn’t worry much about market share from rivals like Tellurian. 

The current price target for LNG is $144.50, a figure that represents an upside of 10% from today’s levels. But I think – based on the ongoing developments and changes in geopolitics, that the target should be higher. I’m watching reports from European financial analysts at firms like Credit Suisse. They are on the ground and see how much their continent’s energy future has shifted due to the Russian-Ukrainian war. That would put the price target at around $160, or more than 21% higher than current levels.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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