NEW YORK (Dow Jones)
A reversal of fortune may be ahead for Cheniere Energy Inc. (LNG).
The Houston-based owner of liquefied natural gas terminals saw its market value plummet last year as high prices in Asia and Europe lured cargoes of the super-cooled, condensed fuel away from the U.S.
A severe drought in Spain sharply reduced the country's hydroelectric power generation, boosting the demand for gas-fired electricity, and LNG imports to Japan skyrocketed after an earthquake damaged a massive nuclear power plant there.
But Cheniere stands to gain from an expected rise in LNG flows to the U.S. later this year as new overseas export facilities come online, and as a severe economic contraction in Asia and normalizing weather in Europe curb demand for shipments. Cheniere owns the Sabine Pass LNG receiving terminal in Louisiana and owns a 30% in the Freeport LNG terminal in Texas.
After U.S. LNG imports fell 56% last year from 2007 to about 350 billion cubic feet, imports are expected to rise 9% in 2009, to about 380 bcf, according to the U.S. Energy Information Administration.
Shares of Cheniere were recently trading at $4.78, about 77% below the 52-week intraday high of $21.22 hit last April.
"The LNG environment is changing, and that's going to result in some fairly attractive opportunities for us," said Charif Souki, Cheniere's chairman and chief executive.
Cheniere is unique because it is a small company that focuses primarily on LNG terminals. Other U.S. companies with LNG terminals are large, diversified energy businesses - Sempra Energy (SE) and ConocoPhillips (COP), for example. These companies haven't struggled as much amid the decline in U.S. LNG imports because their earnings don't depend primarily on the LNG business.
Cheniere, which is covered by a small number of analysts, gets a "hold" or "equal-weight" rating, on average. Some analysts think a recovery in gas demand later this year and early next year will benefit Cheniere, while others see the company continuing to struggle.
Global economic downturn has put a serious dent in natural gas demand from industrial consumers in Asia - typically the largest importer of LNG. A dramatic decline in coal prices has also pressured gas demand lower as some power generators switch from gas to coal.
Meanwhile, several large LNG exporting facilities are scheduled to launch this year, bring more gas into the market at a time when demand is slumping. On Monday, Qatargas inaugurated its Qatargas 2 LNG project, which will liquefy natural gas and transport it from Qatar to the U.K.
Although gas demand has also declined in the U.S., the country has extensive underground gas storage facilities, so gas can be purchased now for use at a later date.
"I think anyone with regasification capacity in the U.S. ought to benefit," said Ray Deacon, an energy analyst with Pritchard Capital Partners in New York. "Those volumes have to find a home somewhere."
Cheniere, which has long-term LNG contracts with ConocoPhillips, Chevron Corp. (CVX) and others, has enough liquidity to sustain the company for the next three years, analysts said. But unless Cheniere is acquired or secures additional long-term contracts by 2012, the company is likely to file for bankruptcy protection, said Justin Perucki, an analyst with Morningstar Inc.
Asked about Perucki's comment on the potential for bankruptcy protection, Christina Cavarretta, Cheniere's manager of investor relations, said: "Given our financial structure, we have sufficient liquidity to manage our operations over the next several years."
Obtaining a long-term contract may be tricky while natural gas demand remains low in the U.S., Morningstar's Perucki said.
"Cheniere is up a creek and is in tough financial footing," he said. "Their bargaining position isn't great."
But prospects for natural gas should brighten considerably once the economy recovers, leaving Cheniere poised to take advantage of climbing demand.
"The long-term demand picture is still really bright," Perucki said. "Gas-fired power generation is one of the easier and quicker things to build."
(Christine Buurma covers the U.S. power and natural gas industries for Dow Jones Newswires.)
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