LNG. To quote Judge Reinhold from Fast Times at Ridgemont High you should "Learn it. Know it. Live it." The Cliffs Notes version is that natural gas is abundant in certain parts of the world -- U.S, Canada, and Russia for instance -- and highly utilized as an energy source in other parts of the world where it is not found in abundance, especially China, Japan and Western Europe.
So liquified natural gas is just what the name implies. Gas atoms are so spread out and excitable that they would be impossible to economically transport. The industry super-cools gas -- liquefaction -- at a port of export and in liquid form and the natgas is easily transportable via shop. Then at the port of entry the process is reversed, re-gasification, and clean burning natgas is readily available for residential heating and cooling, and a variety of industrial uses.
It's a lot of effort, but that one little carbon atom -- natural gas in pure methane form is CH4 -- can produce tremendous energy. So much energy to quite literally bring the developed world into the industrial era. So, ~150 years after the world first began industrially harnessing the carbon atom, we still have not discovered any fuel with that energy content. Watching one of Elon Musk's Tesla (TSLA) Megapack batteries burn for four days in Victoria, Australia last week proves the point.
Natural gas is the perfect fuel for the energy transition. But, like so many other things, especially the materials that compose the cathodes of Tesla's Model 3 batteries, the materials are not produced where they are demanded by the end user. Hence the demand for liquefaction.
I am in Brazil now, and today's absolutely glorious mid-winter day in Sao Paulo hides the fact that Brazil has had a colder-than-average winter. You will notice that when you buy your coffee at Starbucks, and the government here has wisely decided to load up on LNG cargoes, setting a record for imports already this year.
Wed Edens' New Fortress Energy (NFE) has been (along with Petrobras (PBR) , of course) a driving force in the development of LNG infrastructure in Brazil. NFE also recently purchased a significant amount of Golar LNG's (GLNG) LNG carrier fleet, and that adds more value. Flex LNG (FLNG) and GasLog (GLOP) are two other LNG shipping stocks that I have recommended in prior (RM) columns.
We have the processing and transportation of LNG covered, but what about the production? We have so much natgas in the U.S. that one had to figure that enterprising entrepreneurs would exploit that.
Cheniere has been a strong performer this year, +44%, as LNG demand has gone through the roof. Prices for two important global LNG pricing benchmarks, TTF in Europe and JKM in Japan, are implying a Brent-equivalent price of $90/bbl, and obviously real world Brent futures are nowhere near that.
Cheniere is trading near its all-time highs and the chart of LNG stock looks like so many others, with a COVID fillip in March 2020 and then a skyrocketing performance since then. LNG is a good long-term hold.
TELL, on the other hand, has not performed, an underperformance aided by the company's decision to do a follow-on stock offering earlier this week. TELL is much more of an early-stage, developing name than LNG. Companies at that life stage are more likely to burn capital (hence the stock offering) and subject to healthy skepticism from traders.
But a rising tide lifts all boats, and increasingly those boats will be powered by the very LNG that many of them also carry. Volkswagen (VLKAF) , in its green phase under the leadership of Herbert Diess, and recently committed to the "LNG-ization" of its car carrier fleet and I believe more will follow.
I have given you several different ways to play the LNG boom. Don't hold your breath waiting for the bust, by the way. The energy transition is in its early innings and LNG will be the workhorse starting pitcher that carries the world's energy industry through the middle innings until the closer -- 100% renewables -- trots in from the bullpen sometime after 2030. That's a lot of time and a lot of cash flow to be generated for LNG to have as a moment in the sun. Make sure your portfolio has exposure.