Cheniere for the coming LNG Market

 

 

August 18

The newsletter Investment U picks Cheniere as a winner in a field yet to be developed .

  • The LNG Shortage

Nearly every gas import terminal in the country (there are nine of them) applied for permits to install natural gas liquefaction plants. The reason? The demand for natural gas is booming just about everywhere else in the world.

Qatar, the world’s largest exporter of natural gas, will soon hit its full annual export capacity of 77 million tons, in the face of global demand that can absorb nearly as much as the world can produce.

In the wake of the multiple disasters in Japan, it’s importing an additional four million tons over the next year from Qatar. It’s in negotiations to purchase even more.

Fatih Birol, the head of the International Energy Agency, commented on the opportunities for LNG producers in an article in The Wall Street Journal: “Post Fukushima, there will be a lot of opportunities. Japan and Korea both have new long-term contracts in the next four years, and China’s demand is booming. As of 2015 they will have to import as much as [all of] Europe today.”

According to Frank Harris, an LNG expert at Wood Mackenzie, Asian demand for LNG is going to skyrocket to 241 million tons in 2020 from 138 million tons in 2010.

With worldwide demand on the rise and no new large-scale LNG projects set to come online in the Asia-Pacific region for at least the next five years, the door is open for the United States to provide some of the slack. Nearly every U.S. company that owns a LNG import terminal has plans to add export capability in the coming decade.

The Best Natural Gas Turn-Around Investment 

But perhaps the best way to invest in the coming rise in LNG exports is via Cheniere Energy, Inc. (AMEX: LNG). It operates the Sabine Pass LNG facility, in Cameron Parish, Louisiana, and it’s going to be the first LNG export facility to come online.

Cheniere recently received DOE export authorization to export LNG. Construction will begin in 2012, and Sabine is scheduled to come online in stages starting in 2015. It’s also negotiating definitive long-term export contracts with numerous customers. It recently inked a big one with India.

It will take a little over a decade for the United States to switch from being a LNG importer to a LNG exporter.

Exporting LNG will also cause the price of U.S. natural gas to gradually rise, and $5 to $6 gas will be the new minimum floor. What a difference a few years – and 2,000 trillion cubic feet of natural gas reserves – makes.

Westport Innovations – Update

English: Revenue stamp (2pi) for financing the...

English: Revenue stamp (2pi) for financing the construction of Hejaz Railway in the Ottoman Empire. Listed as No. 17a in W. McDonald’s Revenues of Ottoman Empire and Republic of Turkey. See also Ottoman Turkish Empire Revenue Stamps of the Hejaz Railway by Steve Jaques, Troy, 2009, pp.22 (Photo credit: Wikipedia)

Westport* (WPT : TSX : $39.13)
Westport* (WPRT : NASDAQ : US$39.04)

August 7

Shares of Westport Innovations jumped after the company reported their Q2/12 results. For the quarter, the
company reported consolidated revenues of $106.1 million compared with $44.9 million for the same period last year, an
increase of 136.3%.

Earnings were reported at a net loss of $6.1 million ($0.11 loss per share) compared with a net loss of $18.1
million ($0.38 loss per share) for the same period last year.

Breaking down its segments, WPT reported Westport Light-Duty (LD) revenue, which where up 182.2% to $30.7 million, Cummins Westport (CWI) revenue jumped 78.5% to $57.0 million with 1972 engines shipped, and Westport Heavy-Duty (HD) revenue was up 111.3% to $4.3 million with 75 systems shipped.

Service and other revenue was reported at $14.1 million.

CEO David Demers commented, “Key segments of the transport market have begun the inevitable shift from petroleum based fuel to engines powered by cleaner burning, low cost methane (natural gas), and Westport has a substantial presence in each market.” Demers also noted, “We are seeing strong growth in all segments and in all of our global markets, and despite challenging macroeconomic conditions, we expect this to accelerate as new infrastructure comes on stream over the next two years and as we launch new products, opening up significant new
addressable markets.”

Natural Gas Headed to $ 8

Texas Barnett Shale gas drilling rig near Alva...

Texas Barnett Shale gas drilling rig near Alvarado, Texas (Photo credit: Wikipedia)

by Richard Finger

 

“There is a glut of natural gas. Everybody knows that. There’s so much of the latest multi stage hydraulic fracturing going on from New York State
to Texas and all places in between, prices will be low forever. But just as a full watering hole can deplete quickly the current gas storage glut can recede.
In fact it already has been and at an alarmingly brisk pace and there may be a confluence of other events which could hasten the process. Consider
this. The weekly EIA natural gas storage numbers reported each Thursday came in with a 28 billion cubic feet (bcf) injection. The inventory
increase last year at this time was 67 bcf while the five year average accretion was 74 bcf. So true that one week does not a trend make. But this
makes eleven straight weeks that have experienced below average storage injections. After Thursday’s numbers were released inventories stood at
3.163 Trillion Cubic Feet or 19.2% above last year but only 17.5% above the five year average. A seemingly decent cushion until you consider as recently as May 10 stockpiles were 48.4% and 49.9% ahead of the previous year and the five year averages respectively. So the question becomes,
why are rates of gas injection dropping so precipitously unless the shale plays are actually unable to produce the necessary incremental volumes.
A Little History And Some Facts
Natural Gas production in the US was declining steadily until 2005 into what many perceived as an irreversible trend with an implication of persistent shortages. Enter the knight in shining armor; horizontal resource drilling. Daily gas production increased from 51 bcfd in 2005 to an average of 66.2 bcfd (billion cubic feet per day) in 2011. Some months have even spiked above 70 bcfd. The natural gas rig count peaked at 1,600 in the summer of 2008.

No coincidence gas prices topped out concurrently the first few days in July at $13.28 per mcf. So in six plus years while gas drillers
were able to increase daily supply by 30% demand has increased only half that amount. The result has been a spot gas price that bottomed on
April 17, 2012 at $1.89 per mcf (thousand cubic feet). But the pendulum is now trending in the other direction as power suppliers and the transportation industry begin to capitalize on the low price of natural gas.

The EIA (US Energy Information Association) has
prognosticated a 2012 daily production average of 68.98 bcfd and consumption of 69.91 bcfd. Methinks those production
numbers extravagantly optimistic and yet the agency continues to publicly adhere to them. Firstly, actual output over the last two months has already slipped to a bit under 64 bcfd.

Next, the natural gas rig count collapsed to 486, a thirteen year low, on June 22 and had made only minimal recovery to 518 rigs as of last week.
Lastly, numerous major gas producers such as COP and CHK have shut in parts of their dry gas production and are switching their drilling programs away from dry gas to natural gas liquids and oil. Conversely, consumption may exceed EIA projections.
Here’s why. Hotter than usual temperatures across much of the country especially in the population heavy
northeast is causing excess energy demand. Another thought provoking data point from the EIA last week reported that for the first time in history natural gas fired power plants generated more electricity than coal fired plants. That’s quite a milestone. Each now comprise 32% of U.S. power generation. Gas is cleaner and at current prices is a cost effective coal alternative. Adding to short term supply pressures, four nuclear power plants are down, all effecting east coast residents. Though still in early stages numerous fortune 500 companies such as Fed Ex and UPS are transitioning to natural gas powered trucks. A national fueling system is near completion with locations along the major interstate arteries.
Drilling Economics
The earliest horizontal resource drilling was done by Mitchell Energy (now part of DVN) in 2005 in the Barnett Shale which is in and around Fort Worth, Texas. Horizontal fracturing into shale has become much more sophisticated since those early days, with enhanced recovery of
gas in place, although at much greater cost per well. An  average 20 stage horizontal dry gas well in the South Texas Eagle Ford Shale or the East Texas/North Louisiana Haynesville play may cost $8.5 to $12 million. It will be drilled to vertical depths of 8,000 to 12,000 feet below surface.

Let’s assume an average well cost of $10 million with an estimated ultimate recovery (EUR) of 6 bcf. At $2.00 per mcf gross expected
revenues are $12 million and at $3.00 mcf revenues are $18 million and so on. Don’t forget about the expense side of the ledger. There is the mineral owner royalty payment which is often ¼ or 25% which comes right off the top.

Clean Energy Tech Stocks Review : Itron EberNOC ESCO Ameresco Echelon Stantec

Image representing EnerNoc as depicted in Crun...

Image via CrunchBase

While Street sentiment on the sector remains arguably “subterranean,” underlying trends (e.g., analog to digital, utility spending, solid balance sheets and healthy M&A activity) remain resilient looking into ’13, despite fx headwinds. That said, we expect continued volatility as near-term prospects should remain variable by company.

Itron (ITRI : NASDAQ : $41.22 | BUY):

While European exposure (EMEA ~35% of mix) and AMI backlog levels are driving bearish expectations for guidance, we find the outlook likely to be more constructive given the platform breadth. On the call, we’ll be looking for final shipments to BC Hydro, updates on the CEO search and restructuring, as well as timetables/probabilities on European smart meter roll-outs (more ‘14/15 in our view). Our target goes to $55 from $58 as we adjust our multiple to account for FX headwinds (full-year outlook factors USD/EUR fx rate of $1.37 – we note given the natural hedge of localized manufacturing, revenues are likely more impacted than EPS).  Street $562.3M/$0.94.

EnerNOC (ENOC : NASDAQ : $6.87 | BUY):

After a very tough TTM for shares, visibility is improving into ’13, as order flow and margins stay healthy and a return to execution is the focus. That said, new accounting for PJM causes Q2 numbers to be a tough compare (i.e. we are comfortable below the Stre t). Recent PJM ‘15/16 auction results are encouraging, while we are monitoring current discussions around the use of back-up diesel generators for DR (as independent power producers try to push-back on the EPA). We maintain our BUY rating.  Street  estimates$33.2M/$(1.08)

 

 

AECOM reports Q3/F2012 (June) results on 7 Aug. 

Wwe expect US$1.4Bn in net revenue and EPS of US$0.60. MSS margin should improve q/q as activity in Afghanistan ramps (the SPA was signed 1 May) and execution issues dissipate. F2012 (Sept.) EPS guidance of US$2.30-US$2.45 looks safe. We’re comfortable owning the stock into the print as valuation is depressed at 4.7x ‘13E EBITDA. The TTM FCF yield is 11%, best in the space.

GENIVAR (GNV:TSX │HOLD, $22.00 Target 

We expect $150M in net revenue, EBITDA of $25.5M, and EPS of $0.40 when GENIVAR reports Q2/2012 results on 9 Aug. We are in line with the consensus. While the top line should grow 14% y/y we expect only 6% EPS growth due to dilution ($160M PP in Dec.). Transaction costs associated with the WSP acquisition represent a downside risk. We’e cautious heading into the print.GENIVAR trades at 6.9x ‘3E EBITDA (9% TTM FCF yield).

Stantec (STN:NYSE/TSX BUY, $35.00 Target

Stantec will release Q2/2012 results on 2 Aug. and we expect net revenue of $358M and EPS (diluted) of C$0.58 (+4% y/y) while the consensus sits at $0.60. Recall, EBITDA margin slipped in Q1/12 (costs to complete revisions in Buildings due to two large P3 projects and an upgrade to its enterprise management system) but we expect this to improve in Q2/12. STN trades at 12x trailing EPS versus (1) an ROE consistently in the 14-17% range; (2) a long track record of excellent execution; and (3) an 8% TTM FCF yield (2.2% Div. yield).

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