This article has been written by an expert contributor Munro Partners
Who are they?
Cheniere Energy is the largest producer of liquefied natural gas (LNG) in the United States and the second largest operator in the world. They operate two world class liquification facilities with a collective capacity of 45 million tons per annum (mtpa) at Sabine Pass and Corpus Christi along the US Gulf Coast. Approximately 85% of the company’s capacity is sold under long-term take-or-pay contracts to Asia and Europe, with the remaining 15% sold as spot cargos to whoever has the highest demand at the time.
Different to LNG producers in Australia or the Middle East Cheniere is not exploring or developing the gas fields itself, it instead buys the gas off the US grid where there are plentiful supplies thanks to the application of gas fracking. Consequently, Cheniere is more of an infrastructure company whose fortunes are linked to the global need for more LNG and their ability to supply it in a reliable and secure way.
Why we like Cheniere
We see LNG as a logical transition fuel in the decarbonisation of the planet. Clearly natural gas is still a fossil fuel, but it emits less than 1⁄2 of the CO2 of alternatives such as coal and oil. If developing nations such as China and India are going to wean themselves of coal, then LNG will have a role to play for decades to come.
Cheniere, leveraging its access to cheap US natural gas, has grown to be the 2nd largest exporter of LNG from nothing in just 10 years. Recent stock performance has reflected Cheniere’s key role in helping solve the European gas crisis, whereby gas prices in Europe have risen 10-fold due to the shutdown of Russian gas supplies.
As natural gas spreads between Europe and the US widen, the company benefits from selling its spot cargos into Europe, arbitraging the mispricing between the two regions. As such, the company recently increased its FY22 earnings expectations to $11-$11.5bn in EBITDA from a previous $9.8-$10.3bn. More importantly, windfall cash gain and expectations of tighter for longer market conditions have enabled the company to make significant progress to longer term capital allocation plans.
The company now expects $20bn in distributable free cash flow through to 2026, up from an initial estimate of $16bn. With the cash they will expand capacity to 60 mtpa by 2027, buy back $4 billion of shares in the next three years and pay a dividend of $1.58/share growing approximately10% a year through 2027.
Written by Munro Partners, October 2022
Disclaimer: The material contained in this publication has been furnished for general information purposes only as is not investment advice of any nature. The companies mentioned are for illustrative purposes only, is not a recommendation and may or may not be held by a Munro fund. There can be no guarantee that any projection, forecast or opinion in these materials will be realised. As an actively managed fund, Munro continually assesses each portfolio holding and the views expressed in this document may change at any time subsequent to the date of issue. This information has been prepared without taking account of the objectives, financial situation or needs of individuals. No representation or warranty is made concerning the accuracy of any data contained in this document.
More About
- General
- Individual Stocks
- Stocks
- Buy/Hold/Sell
- Expert Articles
- United States
- Energy
- Munro Partners
- South America
- Climate Change