Despite the tit-for-tat trade threats between China and the United States, including imposing tariffs on US energy products, Cheniere Energy (LNG) stock has held steady above $60 per share. We think share could cross the $70 ceiling and rally from there rather than trade range-bound.
Last time LNG stock was trading at $70 a share was in June 2014, when oil was trading above $100 a barrel.
Cheniere's stayed above $60 per share through last week's trade war storm and has bounced back on modest volume.
The risk of PetroChina cancelling its contract with Cheniere may be priced-in on the stock.
Cheniere just signed a 25-year deal with Taiwan indicating there's a market beyond China for US LNG.
Cheniere also has diversified portfolio of customers across Europe, Asia and Latin America.
If we look at Cheniere history prior to the crude oil crash of 2015-2016, the stock outperformed the Energy Select Sector SPDR Fund (XLE) through the downturn as the company ramped up its liquefaction build up. The stock is up +150% since January 2016, when crude oil bottomed, versus a meager 33% for the XLE. It has helped that LNG is not part of the XLE.
Since the start of the U.S.-China trade wars in mid-June 2018, LNG stock has stayed close to $60 a share and did not break that floor, despite the increased volatility around tariffs and counter-tariffs.
This pattern shows that investors still back Cheniere's investment thesis, regardless of geopolitics.
Cheniere signed a 20-year contract with PetroChina on February to deliver 1.2 million tons per annum (mtpa). While a substantial contract, Cheniere has larger contracts with counterparts like GAIL of India (3.5 mtpa) and Korea Gas (3.5 mtpa) bringing certainty to Cheniere's revenue stream, thus it seems that the risk of China cancelling the contract has been already priced in on the stock.
The fact that Taiwan, China's archrival, has signed a 25-year contract, the longest that Cheniere has signed with any counterparty, indicates that there's a market beyond China for US LNG. The deal is also seen as an important step from Taiwan to reduce its trade surplus with the United States, we think other Asian LNG buyers could follow similar strategy.
Cheniere management has worked judiciously to create a diversified portfolio of customers for its two terminals, Sabine Pass, currently in operations, and Corpus Christi, under construction. Most contracts signed by Cheniere are 20-year agreements giving the company the necessary revenue stream and diversification to carry on its development strategy.
Thus, all pieces seem to be in place for Cheniere and China trade wars may only be a bump on the road.