Global demand for liquefied natural gas (LNG) could surge more than 50% by 2040, according to an estimate by Shell. Fueling that rosy outlook is the expectation that China will switch its power plants from coal to gas and that LNG will fuel the economic growth engines of South Asian countries.
Tellurian (NYSEMKT: TELL) had hoped to cash in on the global LNG boom by building its proposed Driftwood LNG facility. That had made it a popular LNG stock. However, with Tellurian agreeing to sell itself to Woodside Energy in a $1.2 billion cash deal, investors will need to look elsewhere to cash in on the LNG boom. Here are two alternatives to consider.
The U.S. LNG leader
Tellurian had hoped to build a leading pure-play LNG export company in the United States. Its proposed Driftwood LNG terminal could eventually export 27.6 million tonnes per annum (MTPA) once fully developed in 2028. The company estimated that the facility could produce over $3 billion in annual cash flow once it reached that point. Meanwhile, Tellurian owns enough land to build a second site capable of producing another 30 MTPA of LNG per year.
In a sense, Tellurian sought to replicate Cheniere Energy (NYSE: LNG). It became the first company to export LNG from the lower 48 states when its Sabine Pass terminal began commercial operations in 2016. Today, Cheniere operates two sites, Sabine Pass and Corpus Christi, with a combined capacity of 45 MTPA. The company has invested over $38 billion to build the country's largest LNG producer and second biggest globally.
Cheniere Energy is on track to produce $3.1 billion to $3.5 billion of distributable free cash flow this year, something Tellurian wouldn't have delivered for many years, if ever. The company is using the cash to invest in growing its LNG export capacity, repay debt, and return money to shareholders through repurchases and dividends. It recently authorized an additional $4 billion in share repurchases through 2027 and boosted its dividend payment by another 15%. It's also building more LNG export trains at Corpus Christi and working on future expansion projects at both sites to continue growing its production capacity and cash flow.
Feeding gas to LNG facilities
LNG export terminals need a steady supply of natural gas. Because of that, they rely on pipeline companies to bring gas into their facilities. Few companies are in a better position to supply more gas to LNG export terminals along the U.S. Gulf Coast than Kinder Morgan (NYSE: KMI). It currently transports a little less than half of all the feed gas into U.S. LNG export terminals.
The company's extensive pipeline network, particularly in Texas and Louisiana, puts it in a strong position to capture opportunities to supply more gas to LNG export facilities. The company currently has contracts to move 7 billion cubic feet per day (bcfd) of gas to LNG terminals. It sees that growing to 10 bcfd by the end of next year as more capacity comes online. Meanwhile, it's pursuing 13 bcfd of additional opportunities to supply gas to LNG export facilities.
LNG exports are just one of Kinder Morgan's many growth drivers. The company is also supplying more gas to support the country's growing power demand and exports to Mexico. In addition, it's investing to support the growth of lower carbon energy like renewable natural gas and renewable fuels.
Kinder Morgan currently produces about $5 billion in annual free cash flow. It pays about half that cash in dividends. It uses the rest to invest in high-return expansion projects, repurchase shares, and maintain its financial flexibility to make accretive acquisitions when opportunities arise. The company currently has $5.2 billion of growth capital projects in the backlog that provide visibility into its ability to grow its cash flow through 2028. That number should rise as it captures additional LNG-related expansion opportunities.
Cash in on the LNG boom right now
Tellurian offered investors the dream of potentially cashing in on the global LNG boom one day when it finished building its proposed Driftwood facility. Unfortunately, it couldn't turn that dream into a reality.
However, while Tellurian couldn't deliver on its LNG promise, Cheniere Energy and Kinder Morgan are already cashing in on the boom. They're generating billions of dollars in cash flow from their LNG-related operations, which should continue growing in the future. That's giving them more money to return to shareholders through repurchases and growing dividends. They're great alternatives for those seeking to cash in on the growth ahead for LNG demand.
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Matt DiLallo has positions in Kinder Morgan and Woodside Energy Group. The Motley Fool has positions in and recommends Cheniere Energy and Kinder Morgan. The Motley Fool has a disclosure policy.
With Tellurian on the Verge of Disappearing, Here are 2 Alternative Ways to Cash in on the LNG Boom was originally published by The Motley Fool