Harnessing the Global LNG Boom: A Closer Look at Alternatives
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The Booming LNG Market
Recent estimates indicate that global demand for liquefied natural gas (LNG) is poised to increase by over 50% by 2040. This optimistic forecast is driven by several factors, including the anticipated shift in China from coal to gas-powered plants, alongside the growing consumption of LNG across South Asian economies.
Tellurian (NYSEMKT: TELL) initially aimed to capitalize on this promising LNG market by developing its Driftwood LNG facility. However, following Tellurian's recent decision to sell itself to Woodside Energy in a significant cash deal, investors may now need to consider alternative ways to enter the LNG sector.
The U.S. LNG Champion
Tellurian planned to establish itself as a major player in the U.S. LNG export industry, with its Driftwood LNG terminal expected to achieve an impressive capacity of 27.6 million tonnes per annum (MTPA) by 2028. The company projected substantial cash flow exceeding $3 billion annually once the facility was operational. Additionally, Tellurian possesses sufficient land for a second site, capable of producing another 30 MTPA of LNG.
In many ways, Tellurian aimed to mirror the success of Cheniere Energy (NYSE: LNG), the first company to export LNG from the contiguous United States. Since commencing operations at the Sabine Pass terminal in 2016, Cheniere has expanded to operate two facilities, combining for a capacity of 45 MTPA. With over $38 billion invested, Cheniere has become the nation's top LNG producer and the second largest globally.
This year, Cheniere is on track to generate between $3.1 billion and $3.5 billion in distributable free cash flow—something Tellurian may not achieve for years. Cheniere is strategically reinvesting its profits to bolster LNG export capabilities, reduce debt, and increase shareholder returns through buybacks and dividends. Recently, the company authorized an additional $4 billion for share repurchases through 2027 and raised its dividend by 15%. Furthermore, it is expanding its operations at Corpus Christi to enhance production capacity and cash flow.
Supplying the LNG Fabric
LNG export terminals depend on a reliable supply of natural gas. Consequently, they rely on pipeline operators to transport gas to their facilities. A notable player in this space is Kinder Morgan (NYSE: KMI), which currently facilitates the transportation of approximately half of all feed gas to U.S. LNG export terminals.
Kinder Morgan's extensive pipeline infrastructure, particularly in Texas and Louisiana, gives it a competitive advantage in supplying additional gas to LNG export facilities. The company is currently contracted to transport 7 billion cubic feet per day (bcfd) of gas to LNG terminals, with expectations to increase that figure to 10 bcfd as new infrastructure comes online next year. Additionally, Kinder Morgan is pursuing opportunities to expand its gas supply to LNG export facilities by 13 bcfd.
Natural gas supply is just one part of Kinder Morgan's growth strategy. The company is also increasing its gas provision to meet rising domestic power demand while facilitating exports to Mexico. Moreover, it is investing to advance the growth of cleaner energy sources, such as renewable natural gas and fuels.
Currently, Kinder Morgan generates around $5 billion in annual free cash flow, distributing approximately half of that to shareholders through dividends. The remainder is reinvested into promising expansion endeavors, share repurchases, and maintaining the financial flexibility necessary for future acquisitions. The company has over $5.2 billion in growth capital projects underway, providing clarity into its cash flow trajectory through 2028, which should only improve as it capitalizes on upcoming LNG expansion opportunities.
Seizing the LNG Surge
While Tellurian's pledge to tap into the global LNG boom faded, Cheniere Energy and Kinder Morgan are already reaping substantial rewards. These companies are generating billions in cash flow from their LNG operations, with growth prospects looking increasingly favorable.
This strong performance enables them to return value to shareholders via repurchases and increasing dividends, making them attractive alternatives for those looking to capitalize on the expected surge in LNG demand.
Should You Consider Investing?
Before investing in any company, including Tellurian, it is essential to conduct thorough research and analysis.
Frequently Asked Questions
What drives the increase in global LNG demand?
The surge in global LNG demand is fueled by transitions from coal to gas in countries like China and the rising energy needs of South Asian nations.
What happened to Tellurian's Driftwood LNG facility?
Tellurian's plans for the Driftwood LNG facility were affected by its decision to sell itself to Woodside Energy in a significant deal, changing its path forward.
Who is Cheniere Energy and why is it significant?
Cheniere Energy is the leading LNG exporter in the U.S., having pioneered LNG exports in the lower 48 states, with substantial cash flow and expansion plans.
What role does Kinder Morgan play in the LNG market?
Kinder Morgan is a major pipeline operator that delivers about half of the feed gas to U.S. LNG export terminals, poised for growth with its extensive network.
Why are Cheniere and Kinder Morgan good alternatives for investment?
Both companies are generating significant cash flow from LNG operations, with plans for expansion and shareholder returns, making them appealing investment options in the sector.
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