How to take advantage of Cheniere Energy's global LNG boom

To take a piece of a market that is expanding, Cheniere Energy is growing

The United States has emerged as one of the most significant nations in the global market for liquefied natural gas (LNG) during the last ten years. From producing almost nothing in the early 2010s, the nation rose to become the largest LNG exporter in the world in 2022. According to BloombergNEF, by the end of the decade, nearly one out of every three tankers transporting the fuel will come from the United States. Over the next three years, the nation's production capacity is anticipated to increase by 60%. The sector's expansion has been driven by businesses like Cheniere Energy (NYSE: LNG) and Venture Global (NYSE: VG), which have invested tens of billions of dollars in the infrastructure needed to convert natural gas into the supercooled liquid that is exported.

Large LNG facilities that turn natural gas into a liquid by chilling it to -160C and then pumping it into specialized ships cost a lot of money and need teamwork from all stakeholders to get from concept to production. Owned by Cheniere Energy Partners LP (NYSE: CQP), a subsidiary of Cheniere Energy, Chenieres Sabine Pass is the largest liquefaction facility in the world, capable of processing approximately 30 million tonnes annually (US exports reached 88.3 million tonnes in 2024).

Cheniere Energy is booming due to the enormous demand for LNG around the world.

The surge in global demand for LNG has accompanied the expansion of US export capabilities. Gas is a reasonably priced, clean fuel that is relatively easy to transport in large quantities when it is liquid. Only two million tonnes of LNG were traded globally in 2024, mostly as a result of capacity limitations. According to the global LNG report from Shell, Europe's largest LNG trader, more than 170 million tonnes of new LNG supply will be available annually by 2030, helping to support demand that is predicted to increase from the current 407 million tonnes annually to 630 million-718 million tonnes annually by 2040.

Both conventional sources, like power generation and heating, as well as unconventional ones, like shipping, are anticipated to contribute to demand. By 2030, the market's demand for LNG-powered vessels will have grown to over 16 million tonnes annually due to the expanding order book.

Cheniere is among the best ways to profit from the LNG boom because of its current facilities, experience, and market position. In addition to Sabine, it also owns the Corpus Christi terminal. Both facilities sell their output into the market under fixed-term contracts, giving the company a great deal of control over future cash flows.

With Donald Trump in the White House, Jack Fusco, the company's CEO, stated at the end of February that it intends to actively seek new regulatory permits to increase capacity. Fusco stated, "To guarantee the long-term growth optionality of Sabine Pass and Corpus Christi, we plan to strategically pursue permits." By constructing additional export terminals at Corpus Christi and Sabine, the company hopes to more than double its current output, which is 45 million tonnes, to 90 million tonnes. The Stage 3 LNG export facility is being built at Corpus Christi by Cheniere, ahead of schedule. The new addition is anticipated to increase output by ten million tonnes annually, with production starting by the end of the year.

Cheniere is counting on the Corpus Christi expansion project to be completed in order to meet its 2025 goals. Adjusted earnings before interest, taxes, depreciation, and amortization (Ebitda) is expected to increase from £6.02 billion in 2024 to between £6.05 billion and £7 billion. Between £41 billion and £46 billion is the anticipated range of distributable cash flow, with over 90% of anticipated operational volumes anticipated to be sold in connection with long-term agreements.

Dripping money.

If it is not distributed, investors will not value "distributable cash flow" very much. Cheniere is trying to do so, though. It recently unveiled its 20/20 vision, which aims to grow its LNG platform and give shareholders a larger payout. By 2026, the goal is to produce £20 billion in cash while increasing the company's distributable cash flow run rate to more than £20 per share.

A total of £5.4 billion was spent by the company last year on debt repayment (£1.2 billion), dividends (£500 million), share repurchases (£2.6 billion), and capital projects. It increased its dividend by 20% and intends to increase it by roughly 10% annually from the £2 per share level in 2025. The total shareholder yield (including share repurchases and debt repayments) was just under 9 percent last year, but the yield is currently only 0.9 percent.

Over the next two years, the company, which has a market capitalization of £48 billion, is expected to generate cash equivalent to 42% of its market value. This renders the group's future cash flow potential worthless. Given that Cheniere plans to more than double its output and that the demand for LNG is expected to rise over the next ten years, the stock's current valuation doesn't seem to account for the significant amount of future growth potential.

Price of Cheniere Energy's shares in US dollars.

The Sabine Pass facility is owned by Cheniere through Cheniere Energy Partners LP, a publicly traded company set up as a partnership. In the United States, this is common for businesses looking to increase capital and reduce liability. In order to draw in investors, partnerships typically offer larger payouts, and income passes through to shareholders. A 48.6 percent limited-partner interest and a 100 percent general-partner interest are owned by Cheniere, the parent company. Despite being listed on the NYSE, the remaining limited-partner units are not appropriate for the typical UK investor because of the peculiarities of US-UK tax law.