The Best Investing Opportunity of the Decade
Commodities / Natural Gas Nov 07, 2013 - 03:07 PM GMTBy: Money_Morning
William Patalon writes:At the end of our October 21 update on Cheniere Energy Inc. (NYSE: LNG) and the liquefied natural gas revolution, we promised to bring you an additional LNG recommendation.
Today we're keeping that promise.
And the company we're recommending is Cheniere Energy Partners LP (NYSE: CQP).
Before you do a "double-take," that's not a typo: Although the companies share the Cheniere first name, they are wholly separate companies - a pair of fraternal (not identical) twins, or the yin to the other's yang.
There's actually an easy way to differentiate the two.
You see, Cheniere Energy owns the gas.
And Cheniere Energy Partners owns the shipment facilities - the pipelines and LNG terminal facilities.
Here's the most important point of all: Energy Inner Circle Editor Dr. Kent Moors, the resident energy expert here at Money Map Press, views both of these stocks as "core holdings" - foundational plays that make up part of your energy holdings.
"Bill, these are both 'base-builder' holdings," Kent told me. "And they are actually two parts of the same, single initiative - the 'LNG Revolution' that we talked about last week."
And that "revolution" is a stunner - it represents a total potential reversal of the United States' global energy position.
America's New Energy Source
Just seven years ago, the so-called "experts" agreed that the United States would need to use imports to meet 15% of the country's gas needs by 2020.
The bleak story was the same one we'd been hearing for years: Americans are wasteful... the country hasn't made the needed investments in renewable energy technology... and the United States exists at the mercy of OPEC.
But that was before the energy companies discovered a new strategy known as "hydrofracking" - hydraulic fracturing - which gave producers access to vast new deposits of oil and natural gas.
Now the United States is projected to become a hefty LNG exporter.
This will elevate the United States' importance on the global stage, Kent says.
"For a long time now, liquefied natural gas has been a rising factor in the energy sector's global balance of power - becoming, as it has, a main source of fuel in places like Japan, South Korea, Taiwan, and Mainland China," Kent told me.
I've seen the evidence myself.
Back in May 2010, for instance - just days after Real Asset Returns Editor Peter Krauth predicted a global uptick in LNG demand because of the Fukushima nuclear power plant disaster in Japan - I heard Radio Japan International report that LNG imports in that country would increase by a full 50% to help offset the massive energy shortage the country faced as a result of the tragedy.
The Fukushima catastrophe took that power plant out of commission - and turned the country's population against nuclear power - meaning Japan suddenly had a massive hole in its energy supply.
And stepped-up LNG imports (a lot of which would come from Australia) were an immediately available partial solution for Japan.
Now, thanks to the fracking boom, the United States is poised to become a big global LNG supplier.
According to a report by CNBC yesterday, U.S. natural gas production reached the "eye-popping" total of 25 trillion cubic feet in 2012. And new Energy Information Administration statistics show that the United States this year leapfrogged both Russia and Saudi Arabia on the list of top natural-gas producers.
To become a big exporter, however, the United States is going to have to embark on a crash building program to create the "infrastructure" needed to export LNG.
On a global basis, the LNG boom will spark roughly $346 billion in energy-related infrastructure investments by 2025, researcher IHS says.
And that will create profit opportunities that are massive in scale, Alex Choinski, a partner and project finance lawyer at the law firm of McDermott Will & Emery, told CNBC. "The advantage is the U.S. has a lot of infrastructure and a unique arbitrage opportunity in overseas markets thanks to the [fracking] boom. The economics can work if you can get the timing and deal structure right."
Exporting LNG requires Department of Energy approval. And throughout the United States, work is under way on about 10 projects that will be crucial in transforming the country into an energy-exporting powerhouse.
And one of those is Cheniere's Sabine Pass facility in Louisiana, Kent says.
That facility received approval in September 2012 - two years after Cheniere Energy first petitioned federal energy regulators for a license to export.
Situated on the Gulf coast, Sabine Pass will be able to export 2.2 billion cubic feet of natural gas per day - which the American Petroleum Institute says is worth more than $26 million per day.
This is a big, big project: It will cost $5.6 billion to complete, and will create 3,000 jobs when finished, CNBC reports.
But that size also conveys the potential that Sabine Pass holds - which is why Kent likes the yin-and-yang duo of LNG and CQP.
"Both of these firms relate to the Sabine Pass facility on the Gulf Coast and the ramp-up of significant LNG exports from the U.S. to most of the rest of the world," Kent explained.
"Cheniere Energy Partners is the partnership that owns the Sabine Pass terminal. Cheniere Energy, on the other hand, actually runs the liquefied gas exporting business, along with two other smaller terminals and a marketing wing for the distribution of LNG. That gives Cheniere Energy Partners an asset base. As a limited partnership, Cheniere Energy Partners also provides a dividend (currently 5.63% annualized).
"That is another advantage to owning the stock. So far, what Cheniere Energy has in hand are five huge multibillion-dollar, 20-year export contracts with some of the top players in the LNG market.
"There's a lot to like here... for a long time to come."
Ready to Roll
Peter originally recommended Cheniere Energy back on July 10. It's up 35% since then, but we believe there is plenty more to come.
Kent - who has recommended both Cheniere Energy and Cheniere Energy Partners to his Energy Advantage subscribers - re-recommended LNG to Private Briefing subscribers in the Oct. 21 report Are You Missing Out on the LNG Revolution?
Today is his first recommendation of Cheniere Energy Partners to Private Briefing subscribers.
"When you study this, you really have to like the way this whole venture is structured," Kent explained. "Those contracts that I mentioned ... well, they allow for the Sabine Pass facility to be constructed on a 'modular' basis. As a major contract is signed, it is used as collateral for terminal expansion. This structure favors CQP over LNG at this juncture. But once the process starts to move, both Cheniere Energy and Cheniere Energy Partners are going to be hot plays, and will likely balance each other out. At this point, we are in on the cheap and it behooves us to bide our time. One is going to provide us a return from the exports; the other from the facility production. In the long run, they will both pack a big payoff."
LNG closed yesterday at $39.70. Deutsche Bank AG (NYSE: DB) recently boosted its near-term target price on the stock from $39 to $47 - a potential gain of 18% from current levels and 59% from where we recommended it.
This is a really big investment story - and we're just at the beginning.
As Kent said, once these projects, production and exports really begin to ramp up, so will the share prices of both of these stocks.
"The bottom line here, Bill, is that the liquefied natural gas revolution is set to hand us one of the best investment opportunities of the decade," Kent said. "Trust me when I say this: As profit opportunities go, this is one you just can't afford to miss out on. These are core holdings. And you have an opportunity to grab them here - before they get away."
See you folks tomorrow...
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Source :http://moneymorning.com/2013/11/07/the-best-opportunity-of-the-decade/
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