LNG. To quote Fast Times Judge Reinhold at Ridgemont High, you should “Learn It. The knowledge. Live it ”. The Cliffs Notes version is that natural gas is abundant in some parts of the world – the United States, Canada, and Russia for example – and widely used as an energy source in other parts of the world where it is not abundant. , especially China, Japan and Western Europe.
Liquefied natural gas is therefore exactly what the name suggests. The gas atoms are so dispersed and excitable that they would be impossible to transport economically. Industry cools the gas – liquefaction – in an export port and in liquid form, and the natgas is easily transportable through a store. Then at the port of entry the process is reversed, regasification and clean burning natgas are readily available for residential heating and cooling and for various industrial uses.
It’s a lot of effort, but that tiny atom of carbon – natural gas in the form of pure methane is CH4 – can produce tremendous energy. So much energy to literally bring the developed world into the industrial age. So, about 150 years after the world began to exploit the carbon atom industrially, we still have not discovered a fuel with this energy content. Watching one of Elon Musk’s Megapack Tesla (TSLA) batteries burn for four days in Victoria, Australia last week proves it.
Natural gas is the perfect fuel for the energy transition. But, like so many other things, especially the materials that make up the cathodes in Tesla Model 3 batteries, the materials are not produced where they are demanded by the end user. Hence the demand for liquefaction.
I’m in Brazil now, and today’s absolutely glorious winter day in Sao Paulo hides the fact that Brazil has had a colder than average winter. You’ll notice this when you buy your coffee from Starbucks, and the government here has wisely decided to load cargoes of LNG, already setting a record for imports this year.
Wed Edens’ New Fortress Energy (NFE) has been (along with Petrobras (PBR) of course) a driving force in the development of LNG infrastructure in Brazil. NFE has also recently purchased a significant amount of the Golar LNG (GLNG) fleet of LNG carriers, which adds more value. Flex LNG (FLNG) and GasLog (GLOP) are two other LNG shipping stocks that I have recommended in previous columns (RM).
We take care of the processing and transportation of LNG, but what about production? We have so many natgas in the United States that one had to imagine that enterprising entrepreneurs would exploit that.
We have such an entrepreneur at Charif Souki, a privileged guest of Jim Cramer on Crazy money. Charif is the engine of two LNG fields, Cheniere Energy (LNG) and Tellurian (TELL).
Cheniere performed very well this year, + 44%, as demand for LNG exploded. The prices of two major global LNG pricing benchmarks, TTF in Europe and JKM in Japan, imply a Brent equivalent price of $ 90 / bbl, and it is evident that Brent futures in the real world are far from that.
Cheniere is trading near all-time highs and the LNG stock chart looks like so many others, with a COVID boost in March 2020 and then a skyrocketing performance since then. LNG is a good long-term catch.
TELL, on the other hand, did not perform, an underperformance helped by the company’s decision to make a follow-up stock offer earlier this week. TELL is much more of an early stage and developing name than LNG. Companies at this stage of life are more likely to burn capital (hence the stock offering) and subject to skepticism from traders.
But a rising tide lifts all ships, and more and more these ships will be powered by the very LNG that many of them also carry. Volkswagen (VLKAF), in its green phase under the leadership of Herbert Diess, and has recently embarked on the “LNG-ization” of its fleet of car carriers and I think more will follow.
I have given you several ways to play the LNG boom. Don’t hold your breath while waiting for the bust, by the way. The energy transition is only in its early stages and LNG will be the starting launcher that will carry the global energy industry in the middle of the sleeves until the closest – 100% renewable – comes out of it. ‘enclosure some time after 2030. It’s a lot of time and a lot of cash flow to generate for the LNG to have a moment in the sun. Make sure your portfolio has exposure.
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