Should you buy liquefied natural gas stocks now?
Natural gas prices are soaring all over the world. Between extreme heat in many parts of the world driving up energy demand and Russia’s threats to cut off supplies to Europe – not to mention sanctions on Russia over its invasion of Ukraine – demand for reliable sources of natural gas is disrupting global energy markets.
The challenge with natural gas is that, unlike energy products made from crude oil, such as gasoline and jet fuel, natural gas is more difficult and more expensive to transport long distances, especially overseas. . This is because it is a gas at room temperature, and to transport large volumes in shipping containers it must either be compressed to very high pressures or liquefied. But with soaring energy prices and increasing global demand to meet global energy needs, it has become profitable to liquefy it and export it. One company that has paved the way here is Energy Cheniere (LNG 1.30%)the largest pure-play liquefied natural gas (LNG) company in North America, which has also been an extraordinary investment, growing more than 80% in the last year and increasing tenfold over the last decade.
But has the best money ever been won at Cheniere? What other LNG stocks are worth considering? Keep reading for some ideas.
Stocks of big oil companies are the safest way to invest in LNG
While Cheniere is the biggest pure LNG stock, some of the biggest multinational supermajors are the biggest players in LNG. Two in particular, Shell (SHEL 2.86%) and Total energies (TTE 2.61%)are among the largest, with a significant market share in global LNG.
For investors looking for some exposure not only to LNG, but also to natural gas more generally – both also use it in their petrochemical manufacturing and produce significant quantities which they sell on global energy – the smartest way to do it may be these oil and gas giants. In addition to natural gas, the two are also integrated companies, operating significant oil and gas production, pipelines, refining and marketing to end users. As a result, they may not have the advantage as pure players, but in energy markets, being diversified also means less risk of a crash when prices eventually drop.
Ready to take more risks? 2 pure-play LNG stock ideas
If you want to consider pure gaming, two names to look at are excel energy (EE -1.76%) and earthling (TO TELL ABOUT 2.29%). Excelerate owns and operates floating vessels that are used to store LNG, then regasify it and feed it into pipelines that deliver gas to end users. This company is particularly attractive because it provides the services that take the LNG that is shipped from where it is produced, increasingly from North America, Australia and other countries, and bring it back to the gaseous state that is cost effective to store, move, and supply. The company recently announced an agreement to supply a floating storage and regasification unit on a five-year contract in Germany. Excelerate already generates stable revenues, grows them quickly and has a history of generating positive operating cash flow. It is well run, but it will face stiff competition, its ships are very expensive, and it will likely need to take on more debt to fund future expansion. Managing its balance sheet as it grows is something investors should watch out for very closely.
Tellurian, meanwhile, is by far the riskiest stock in this group, as it’s still overall a startup with a great idea, all the necessary regulatory approvals, and some gas-producing assets. natural. But the reason for owning Tellurian isn’t those gas wells, but rather the LNG export facility it has the approvals to build but hasn’t fully advanced on construction yet.
In short, Tellurian’s thesis is that its Driftwood facility will be a low-cost source of LNG for buyers, while Tellurian’s proximity to low-cost gas resources – both some of which it produces and much that she will buy from other sources – will give her cost advantages. And that should mean higher margins, stronger cash flow, and big returns for investors.
At least that’s the plan. The problem is that after several years of planning, pre-engineering work, and long-term supply contracts with buyers, it still hasn’t lined up the $15 billion to $25 billion, depending on the final size of installation. — he will have to build it. And until he lines up the financing, and we can see the terms and the cost of that capital, it’s hard to value the business. The biggest risk is that it will never be built and that the small portion of natural gas acreage that investors come to view as the only asset will not support the current stock price. The company’s co-founder, Charif Souki, also founded Cheniere Energy. So we have someone deeply involved who has already done this.
But a successful second act is not guaranteed. Invest according to your risk tolerance.