Ask any economist about the future of America and youwill likely
get a sobering answer.
Data on exports and imports for the month of November 2012
showed the United States bought $231.3 billion of goods from
foreign sources and exported only $182.6 billion of goods. To
finance this $48.7 billion gap, the United States sells
Treasurybonds -- which are basically IOUs financed by the
But the United States has been running adeficit for decades and
the interest paid on the Treasury IOUs is a measly 2%, so why even
worry about the trade deficit?
Because we are already seeing the negative effects of this
overspending. The U.S.economy grew just 1.8% in 2011 compared to
the average of 4.5% growth in the second year after the end of
eachrecession since 1970, according to data from the Bureau of
Economic Analysis. This means the United States has now about $407
billion dollars per year of lost economic growth (4.5% normal
growth minus 1.8% times $15.09 trillion economy = $407
And what's the biggest culprit in the country's inability to
balance the national checkbook?
In 2011, oil imports cost the United States about $331.6 billion
and accounted for 58% -- almost two thirds -- of the total trade
Admittedly, the U.S. trade deficit is not the only factor in the
slower growth, but spending more than $300 billion a year on oil
does not help.
What can we do?
Stocks Chief Strategist Andy Obermueller points out.
Let me explain…
While the United States still imports a huge amount of oil, the
country is the No. 1 natural gas-producing nation in the world, at
611 billion cubic meters, according to the CIA World Fact Book.
It's also No. 4 in proven reserves -- at 7.7 trillion cubic meters
-- and that isn't counting the 50 trillion cubic meters of
estimated probable reserves.
But in contrast to the price of crude oil, which has been in a
fairly constant global trading range through the years, the price
of natural gas varies from
as high as $18 per million British thermal units (Btu) in Asia
to 10-year lows of $3 per million Btu in the United States
And that's where the opportunity lies. Over the next few years,
the United States has a chance to narrow its trade deficit by a
substantialmargin , thanks to advancements in drilling techniques.
And in the process, investors with foresight could make a king's
Let me explain...
The discovery of new reserves using production techniques such
as hydraulic fracturing (or fracking) drove the price of natural
gas down in the by more than 90% between 2005 and June of 2008, as
you can see in the chart below.
Because the United States produces so much more natural gas
than is in demand, we have about 3,000 billion cubic feet of
natural gas in storage. At $18 per million Btu, all this natural
gas would be worth about $55.5 billion if it were exported to
So why are we sitting on so muchmoney while the economy
To be transported, natural gas must be converted into
liquefied natural gas (known as LNG). But the country simply
doesn't have enough infrastructure built up to convert natural
gas into LNG and export it on a massive scale.
But that's all changing...
The shale gas boom has unlocked a generational opportunity,
and few companies are more ready to take advantage of it than
Cheniere Energy (
That's not an exaggeration. Because of government licensing,
Cheniere Energy is currently the
company able to export LNG to non-free trade countries.
Private-equity firms have been jumping in, providing the
company with loans last year. Long-term contracts for deliveries
have already been signed, even though exports are not expected to
begin until 2015. Cheniere has already sold out its fourth
processing LNGfacility and is considering building two more to
Though not yet profitable, theinvesting story here is all
about potential.Analysts atCredit Suisse expectrevenue to jump
three-fold from an expected $310 million in 2015 to $1.0 billion
in 2016, and then almost double in 2017 as the company's
liquefaction business ramps up.
The loss of $2.59 per share reported in 2011 is expected to
shrink to a loss of just 23 cents a share in 2013, and could turn
into a per-share gain of $1.89 by 2016. Expectations forearnings
per share of $4.06 in 2017mean a stock price of about $54, if
theshares are valued at the industry average of 13.4 times
earnings. This means an impressive gain of about 255% in five
years for current investors.
A recent contract signed by Cheniere Energy helps investors
price the company's true value: the company agreed to a 20-year
arrangement with French oil giant
to deliver 2 million tons of natural gas a year at a 205% premium
on current prices. The first delivery is expected in 2018. If
Total is willing to lock in this kind of premium five years
before shipments are expected to start, then how much will other
customers be willing to pay?
Risks to Consider:
Shares of Cheniere are up 140% in price since January 2012
and actual shipments of LNG are still years out. There are still
alot of unknown facts that could act against the company, but
recent contracts help to clarify product demand and pricing.
Action to Take -->
The shale gas boom is one of the secular growth stories around
which manyinvestment themes will emerge during the next 10 years.
[For more, check out this special report.]
Cheniere Energy is on the forefront of this narrative and, as
Andy and I both agree, has already been proving to be a
game-changing stock. Based on the math outlined above, savvy
investors who get in on this ride could gain as much as 255%
within only five years.
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