This 'First Mover' Is Primed to Fill the Energy Void in Europe

Natural gas is making all the headlines these days...

It all boils down to Russia's invasion of Ukraine. You see, Russian energy accounted for 45% of natural gas imports and around 25% of crude oil imports last year for the European Union, according to the International Energy Agency. In Germany, the percentage is even higher – with Russia making up about 60% of energy imports.

Increased tensions resulting from the invasion have brought energy supplies into the spotlight. The U.S. has banned Russian energy imports, while Europe's foreign policy chief recently said it was a matter of when, not if, it bans Russian oil and gas imports.

To help ease the energy crunch in Europe, the U.S. is stepping in. President Joe Biden has agreed to boost natural gas exports to Europe. In fact, the U.S. will increase its natural gas exports to Europe by 15 billion additional cubic meters of liquefied natural gas ("LNG") – nearly double the U.S.'s LNG exports to Europe in 2021.

And today's company is perfectly positioned to take advantage of the boost in stateside LNG exports...

Cheniere Energy (NYSE: LNG) formed in 1996 as an oil and gas exploration company. But in the early 2000s, founder and then-CEO Charif Souki pivoted... Instead of looking for oil and gas, he decided to shift the company's focus to LNG.

At the time, Souki, along with many others around the globe, believed in the theory of "Peak Oil" – the now-debunked idea that the world would soon run out of oil. And he thought the U.S. would need to start importing natural gas to meet its energy needs.

So Cheniere opened up a "regasification" facility called Sabine Pass to receive these imports. This facility was designed to transfer LNG imports back into natural gas that can be used for energy.

Shortly after, fracking began to emerge as a major method of extracting hydrocarbons to generate energy. Domestic supply grew, and the global energy landscape changed forever.

Suddenly, hundreds of trillions of cubic feet of natural gas became accessible. As a result, the price of gas fell from $14 per thousand cubic feet in June 2008 to $4 per thousand cubic feet in June 2009.

So in 2010, just two years after the regasification facility at Sabine Pass opened, Cheniere completely reversed course... It announced plans to build a liquefication facility at the site.

(The liquefaction process involves cooling gas to negative 260 degrees Fahrenheit. At that point, the gas condenses into a liquid form and takes up only 1/600th of the space as its gaseous form. That allows LNG tankers to ship it more efficiently around the world.)

Cheniere now has nine operational liquefaction facilities – which it calls "trains" – six at Sabine Pass and three at Corpus Christi. Each of its trains were completed ahead of schedule and within budget.

Right now, Cheniere is the largest LNG producer in the U.S., and it's second in the world behind Shell (SHEL).

Even better, the company's trains aren't its only key assets in this space. Cheniere also owns an interest in more than 300 miles of natural gas pipelines. That makes it easier for the company to get its gas to the terminals without spending money on pipeline fees.

As a whole, turning to LNG exports has been great for Cheniere's financials...

In 2015, the year before Cheniere sold its first LNG exports, it reported an abysmal $7 billion of negative free cash flow ("FCF"). But slowly, the company's financials have started to improve... In 2020, its FCF equaled around negative $500 million. But it turned cash-flow positive in 2021, reporting FCF of $1.9 billion. And Wall Street expects Cheniere to double its FCF to $3.8 billion in 2022.

Meanwhile, Cheniere's revenue has grown from $271 million in 2015 to $9.4 billion in 2020. Sales then surged around 70% to $15.9 billion in 2021. And its earnings before interest, taxes, depreciation, and amortization ("EBITDA") grew from negative $275 million to positive $6.7 billion over the same span.

With Cheniere, investors get a first mover in the LNG export game. Its infrastructure puts it years ahead of its competitors. Thanks to decades of borrowing and spending to build up its business, the company is finally turning a profit.

And now that there's a heightened, worldwide focus on LNG exports, this should fuel more gains in Cheniere's stock price.

Sometimes investing is simple.