LNG Still Has a Place in US Energy Supply (LNG, CQP, TOT, CVX, GE, COP)

The US pure-play liquefied natural gas (LNG) companies, Cheniere Energy, Inc. (AMEX:LNG) and Cheniere Energy Partners LP (AMEX:CQP), reported earnings this morning, and one is headed up and the other is headed down.  This may have some loose ties for Total SA (NYSE:TOT) and Chevron Corp. (NYSE:CVX), as well as General Electric Co. (NYSE:GE) and ConocoPhillips Corp. (NYSE:COP).

Cheniere Energy reported a first quarter EPS net loss of -$0.64, compared with an EPS net loss in the same period a year ago of -$1.70. The results are consolidated and include the company’s 90.6% interest in Cheniere Partners, which reported earnings per common unit of $0.36, up from $0.08 in the same period a year ago.

Revenues at Cheniere Energy totaled $79.5 million, up from just $1.2 million a year ago, primarily due to to payments the company has received under two third-party terminal use agreements it signed last year. The company’s Sabine Pass LNG receiving terminal is now fully operational and posted revenues of $66.8 million for the quarter, compared with no revenue at all in 2009’s first quarter.

The company’s marketing and trading group reported revenues of $12.14 million, up from $501,000 a year ago. Cheniere Energy purchases LNG and uses derivative contracts to hedge its cash flows from future sales of its LNG inventory. The company recognizes earnings as physical sales occur, and it settles its derivative contracts as natural gas prices change.

Cheniere Partners reported first quarter revenue of $130.8 million, more than double revenues of $62.5 million in the year-ago quarter. Revenues are derived from terminal use agreements with Cheniere Energy’s Marketing subsidiary and similar agreements with divisions of Total SA (NYSE:TOT) and Chevron Corp. (NYSE:CVX).

Cheniere Energy’s EPS loss was higher than expected and the shares are down about 5%, while Cheniere Partners’ shares are up more than 5% on the earnings news.

It wouldn’t be unreasonable to wonder what is going on with LNG anyway, given the vast amounts of natural gas now being pumped out of shale plays like the Barnett, Marcellus, and Fayetteville shales. In general, the enthusiasm of five or six years ago has cooled off, both because of the increase in shale gas development and the low price of natural gas.

However, as a long-term play, LNG still has some believers. Yesterday, General Electric Co.’s (NYSE:GE) Energy Financial Services group invested $15 million in the Gulf Energy LNG terminal now under construction in Mississippi. One analyst is quoted as saying, “There’s no screaming need for it right this minute, but when world demand grows again, then we’re going to be grateful that we have access to LNG.”

In April, Cheniere sold its 30% stake in the Freeport LNG terminal, which is 50%-owned and operated by ConocoPhillips Corp. (NYSE:COP) for about $104 million. The Freeport terminal is shown in the photo.

The company will use the proceeds to pay a portion of its $400 million, 9.75% term loan that the company owes to one of its subsidiaries.

Another sign of life in the LNG business is another April deal involving a subsidiary of Russia’s Gazprom with Sempra Energy Corp. (NYSE:SRE). Beginning next month, Gazprom will pay Sempra for the right to deliver and sell up to two LNG cargoes a month to Sempra’s Cameron receiving terminal near Lake Charles, Louisiana. Gazprom already supplies LNG to Sempra’s terminal in Baja California.

There’s still life in the US LNG business, but it did not materialize as fast and as big as anticipated just a few years ago. Combined with the long-term interest in LNG is the relatively low entry price to get a piece of the action.

Paul Ausick

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