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5 Stocks Set to Thrive in the Booming LNG Export Environment

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Volumes flowing to liquefied natural gas (“LNG”) terminals have experienced a sustained increase over the past few months on the back of a better demand outlook. Shipments of LNG for export from the United States reached a new all-time high in the first half of 2022. Data suggests that U.S. LNG feed gas volumes will continue to grow for a long time to come.

Shell (SHEL - Free Report) , Chevron (CVX - Free Report) , Cheniere Energy (LNG - Free Report) , Kinder Morgan (KMI - Free Report) and Energy Transfer LP (ET - Free Report) are some of the firms taking advantage of this export boom.

Strong Demand Growth

Per British energy giant Shell’s 2022 LNG Outlook, demand for natural gas chilled to liquid form reached 380 million tons last year, up by 21 million tons from 2020 as most economies recovered from the disruption caused by the pandemic. It's important to note that just 100 million tons were traded in the year 2000.

Data from the Energy Information Administration’s ("EIA") also reflects the positive momentum. According to the agency, U.S. LNG exports have increased sharply since 2016. Over the past six years (2016-2021), shipments from America surged from 184,250 million cubic feet to 3,560,818 million cubic feet — a new record.

The Trend is Likely to Continue

Global LNG demand might continue growing for a long period and is projected to nearly double to more than 700 million tons per annum by 2040. While increasing demand for gas in the European power sector will be a key factor in the near-term LNG supply rise, the consumption boost is primarily set to come from Asian importers like China, South Korea and India as part of efforts to switch from coal and heating oil for environmental reasons.

Then there is the Russia-Ukraine conflict. Significantly, some 70% of Russian natural gas supplies used to be purchased by European countries that have little option to substitute a major part of it. While the continent has been trying to wean itself off this dependence and has cut a substantial portion of the imports, it still gets some of its natural gas requirements from Moscow. The worldwide uncertainty imposed by Kremlin’s aggression has aggravated the risk of Russia cutting supplies to Europe, which could mean more U.S. LNG shipments.  

Being one of the biggest suppliers of LNG to global markets, the United States is well-positioned to leverage the boom. On average, the EIA anticipates U.S. export volumes to reach 11.7 billion cubic feet per day (Bcf/d) in the fourth quarter of 2022, up more than 17% from the current quarter. Speaking of annual figures, the agency sees shipments rising from 9.76 Bcf/d in 2021 to 11.01 Bcf/d this year and 12.34 Bcf/d in 2023.  

Further, domestic natural prices remain relatively constrained on the back of abundant supplies, which provide an attractive opportunity for exporters to sell U.S. natural gas production at higher prices overseas (Europe and Asia).

5 Stocks to Gain From This Trend

With the dramatic growth of natural gas exports and investors’ strong appetite for LNG stocks, we present five companies that investors should watch out for.

Shell: Shell’s long-term strategy revolves around LNG. This London-based firm bought BG Group for $50 billion in 2016 to become the world’s largest producer and shipper of LNG. With LNG export demand likely to rise significantly in the near-to-medium term, Shell’s position as a major supplier of LNG should help the company meet the fuel’s growing demand and help cash flow to improve.

Chevron: Chevron is another world-class operator of LNG. The giant Gorgon and Wheatstone developments in Australia, which are part of Chevron’s long-term strategy, are also its flagship LNG developments. These mega projects allow the supermajor to tap into the strong Asian LNG demand. Chevron is the operator of both the projects — with a stake of 64.14% in Wheatstone and 47.3% in the Gorgon development.

Cheniere Energy: Being the first company to receive regulatory approval to export LNG from its Sabine Pass terminal, Cheniere Energy certainly enjoys a distinct competitive advantage. Given its first-mover advantage in the LNG export market, the firm is primed for significant revenue and earnings growth on the back of long-term contracts and solid operations. Presently, Cheniere Energy’s substantial LNG asset platform includes the Sabine Pass Liquefaction facility with a total production capacity of 30 million tons per annum and Corpus Christi LNG Terminal, having a capacity of 15 million tons per annum. The premier LNG provider has a proven track record of execution and operations.

Kinder Morgan: As U.S. LNG exports continue to increase, Kinder Morgan will be another firm to reap benefits. In particular, the company’s network of pipelines and storage assets helps it to leverage the growing feedgas deliveries to liquefaction terminals. Apart from providing the infrastructure to facilities operated by others, Kinder Morgan started full commercial operations at its 51%-owned $2-billion Elba Island export plant in 2020.

Energy Transfer LP: Energy Transfer is also an important player in this space. The partnership’s Lake Charles LNG Terminal provides it with a strong foothold in the global LNG business. The terminal and regasification facility located on Louisiana’s Gulf Coast near Lake Charles has long-term contracts with a wholly owned unit of Shell. The partnership is also developing an LNG liquefaction project at the site.

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