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Cheniere Energy to Boost LNG Export to China on Trump's Deal

Zacks Equity Research

Houston-based natural gas exporter, Cheniere Energy, Inc.’s LNG shares rallied more than 3.3% on May 12 to close at $48.68, following President Donald Trump’s recent trade deal with China. The deal aims at bolstering U.S. trade access and exports to China, including LNG exports, which will pave way for Chinese importers to secure LNG contracts from US suppliers.

Until now, Chinese buyers did not purchase long-term LNG supplies from the U.S. directly. This deal will help the developers to target Chinese buyers directly and is also likely to support direct Chinese investment into liquefaction and upstream developments in U.S. 

Over the last month, Cheniere Energy had extensive negotiations with Chinese entities regarding LNG exports to China. The recent trade deal will accelerate shipments to China.  Cheniere Energy is currently the only company exporting LNG cargoes from the continental U.S. The company has exported nine LNG cargoes to China on spot market since the opening of the Sabine Pass terminal in 2016.  With the deal, it is now looking forward to secure long-term contracts from the Chinese companies.

The new trade agreement will connect U.S. – the fastest growing LNG supplier – to China, the largest LNG growth market. The LNG demand in China is expected to grow to 75 million metric tonnes per year by 2030 which is almost triple its 2016 imports. However, the deal which paves way for a wave of LNG investment in U.S might also put more pressure on competing suppliers. This in turn is likely to intensify the competition in an already glutted global market.

Zacks Rank and Key Picks

Cheniere Energy is primarily engaged in liquefied natural gas-related businesses. The company owns and operates the Sabine Pass liquefied natural gas terminal in Louisiana through its 57.9% ownership interest in and management agreements with Cheniere Energy Partners, L.P. CQP.

In the last six months Cheniere Energy’s shares have outperformed the Zacks categorized Oil and Gas - United States - Exploration and Production industry. The company’s shares gained 31.3% while the industry witnessed a decrease of 8.3%

Cheniere Energy currently carries a Zacks Rank #3 (Hold).

Better-ranked players from the energy space include Pampa Energia S.A. PAM and RWE Aktiengesellschaft RWEOY. Both the companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Pampa Energia is expected to report year-over-year growth of 38,200% in its earnings in 2017.

RWE is expected to report year-over-year growth of 42.45% in its earnings in 2017.

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