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Shares of Cheniere Energy Rallied in December on Rising LNG Prices

Tyler Crowe, The Motley Fool

What happened

Shares of liquefied natural gas exporter Cheniere Energy (NYSEMKT: LNG) were up 11.4% in December. This past month's rally came on the heels of rising LNG prices around the world, especially in Asia.

So what

The United States has become a premier place to liquefy and export LNG from thanks to an incredibly cheap feedstock. This past month, that position has become even more advantageous as reports indicate that LNG prices in Asia are at three-year highs. According to the Financial Times, China is looking to curb pollution in urban areas by shifting away from coal and toward gas, and as a result, its appetite for LNG has become voracious and is expected to remain strong for a while.

Overhead view of an LNG terminal.

Image source: Getty Images.

In December, the average spot price for natural gas in Asia was above $10 per thousand cubic feet. Conversely, the average spot price for U.S. gas was less than $3 per thousand cubic feet, which gives LNG exporters like Cheniere a great profit margin, even after the high costs of liquefaction and shipping.

Now what

Gas prices around the world are always going to fluctuate, so it's hard to get too excited about this news. There are plans for dozens of new LNG export terminals in the coming years, which could oversupply the market and send prices outside the U.S. lower again.

That doesn't really matter much to Cheniere, though, because more than 85% of the company's liquefaction is sold under long-term, fixed-fee contracts. That leaves only a small amount of gas to be sold to the spot market. Granted, it will see a slight benefit from these higher gas prices, but probably not enough to drastically change one's investment thesis on the company. 

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Tyler Crowe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.