Natural gas prices were range bound for the better part of the last decade, oscillating between $2 and $4 per million British thermal units (MMBtu) with the occasional spike outside that tight range. With a constant increase in supply and lackluster demand, beyond some unusually cold winters, many energy production companies started to shift production away from natural gas to focus on crude oil while others looked at more lucrative markets in the East to ship the excess natural gas. To ship natural gas to other international market, the gas has to be liquified first to create LNG and then shipped via special ocean tankers.
When you think about the big jump in natural gas prices in Europe and the upcoming disruption to supplies from Russia, Cheniere Energy (LNG) comes to mind. The company spent several years investing in building LNG terminals and in February 2016 started to export LNG. I had looked at Cheniere several times over the years but the company’s net losses, large capital investments and massive debt load in an environment that wasn’t favorable for natural gas prices did not give me much confidence. All of that changed with the current geopolitical environment.
Another company that been building the infrastructure to export LNG and that struck a 20 year deal to supply LNG to China’s ENN last month is Energy Transfer LP (ET). As you can from the following chart from the company’s investor presentation, the company is starting to become a world leader in LNG exports.
ET happens to be one of the few energy companies with significant insider ownership and it is always encouraging to see an independent director purchase shares on the open market like Mr. Michael Grimm did through his family partnership and for his children’s accounts. Mr. Grimm has served on the company’s board since October 2018 and has over 43 years of experience in the oil and natural gas industry.
While ET’s stock has done well this year, up nearly 40%, it has significantly underperformed its peers over the last five years and had negative returns during that period. Like Cheniere, the company has been investing heavily into its infrastructure and has managed to grow through a string of acquisitions. This left the company with a very large debt load (an astounding $50.23 billion in net debt) and low net income margins compared to peers. Just like Cheniere, this has changed in recent quarters and the company plans to scale back capital investments and increase EBITDA in 2022 as you can see below.