Thoughts on LNG stocks?

quote:

---

What’s y’all’s thoughts on LNG stocks?

---

Canadian LNG will perform better than US LNG. Just my opinion.

The price of AECO is expected to double in the next two to three years as they are building pipelines and processing plants. It is easier to ship to the Asia market from Western Canada.

One must ask themselves -- what drives a LNG export company?

The spread between domestic gas and international gas.

Domestic gas is on an upward trajectory.

International gas isn't.

Meanwhile, there is way too much capacity being built.

So what happens when you have 2x the amount of capacity that is needed to meet demand?

Also OKE is not an LNG stock

VG could very well go bankrupt in 5+ years

Cheniere has been a huge winner. They had a gigantic first mover advantage and did a wonderful job contracting, constructing, operating, just generally executing.

Most of those gains happened early or post COVID sell off. That was the easy stuff.

I mean the stock is down y/y

quote:

---

They are massively overbuilding capacity and not even worried about the ROI.

---

You think they are just waiting for the next period of time where they will just be able to pick up and run full speed? It might be ten years but they want that pad ready and raring to go is my only estimation.

quote:

---

Aren’t these LNG plants signing 20 year contracts on set prices before the facility is ever built?

---

They do sign up capacity at fixed tolling rates, but not for 100% of nameplate capacity. They all have merchant arms that market around their open capacity. Example — VG contracts 75% of their capacity and uses the remaining 25% to essentially work the domestic / international spread, which is compressing.

OKE has gotten pretty beat up over the past year or so. And they deserved it for some reckless M&A. But I bought around $70, though, which ultimately is a <10x EBITDA multiple.

Domestic gas prices vs. international gas prices

I sound like a broken record

Domestic gas went from <$3 to >$4
International gas went from >$15 to <$10

Right now, the spread is about $5. That is kind of where the fulcrum begins where you make or don't make money on marketing volumes and also brings into the conversation questions around recontracting (e.g. original contracts were struck when the spread was $8-10, now it's far lower, etc). Also, there are a million new export facilities being built.

So, fundamentals breaking down, more capacity coming online, no bueno.

Cheniere is a cleaner play in every single way possible.

Execution, management integrity, business model, balance sheet, etc.

VG is trash. Their fees on contracted volumes are lower than anyone. They rely on trading basically. And they are incredibly over levered. And there is still a big unknown with pending lawsuits and such. And they claim that they can get volumes to above like 40% of nameplate capacity on their trains... ok buddy sure, would that even be economically accretive at today's spreads? Eh

This is what happens when a banker and a lawyer from NYC get together and want to make a boat load of money for themselves.