As oil prices spurt up, liquefied natural gas will probably take a growing share of the energy market in the years ahead. So say some pros now investing in LNG. The only U.S. pure play is Houston's Cheniere Energy (LNG ), whose shares trade on the American Stock Exchange with the ticker symbol LNG. Cheniere is currently building three "regasification" terminals in Louisiana and Texas, with the capacity to transform cheap imported LNG back to natural gas. Chevron (CVX ) and Total (TOT ) have already contracted with Cheniere to treat LNG that they will buy abroad when these terminals start operations in 2008. A fourth Cheniere facility is still awaiting government approval. Cheniere shares have soared -- from 25 in May to 39 now. William Harnisch, CEO of hedge fund Peconic Partners, which owns a 1.5% stake and invests heavily in energy, says Cheniere is "way ahead of the curve in gearing up for the jump in demand for liquefied natural gas in the years ahead." He figures the shares will hit 100 in two years, in light of projected revenues and earnings before interest and taxes. His forecast, however, is based on natural gas priced at a conservative $4 per 1,000 cubic feet, vs. today's perhaps unsustainable $14. Samuel Brothwell of Wachovia Securities (WB ), who rates Cheniere "outperform," says "LNG is essential to keep pace with the fast rise in demand for gas." He sees Cheniere making money in 2008. Phillips Johnston of JPMorgan Securities (JPM ), which has done banking for Cheniere, rates the stock "overweight." He sees Cheniere earning 84 cents a share and having cash flow of $2.26 a share in 2008. Johnston predicts that "imports of LNG will expand substantially in the coming 10 to 15 years."
Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.
By Gene G. Marcial