Yahoo Finance US. LNG Export Market Hurdles Should Not Bother Investors
The global market for liquefied natural gas (“LNG”) is experiencing unprecedented growth. LNG, a critical component in the transition to cleaner energy, is seeing increased demand as countries strive for energy security and reduced carbon footprints. The United States has emerged as a major player in the LNG market, thanks to its abundant natural gas resources and advanced export infrastructure.
However, recent developments have highlighted significant challenges that could impact the timing and cost-efficiency of new LNG projects. Despite these hurdles, the long-term prospects for LNG remain bright, presenting lucrative opportunities for forward-thinking investors.
Rising Costs and Labor Shortages
The construction of new LNG export facilities in the United States is currently facing substantial headwinds. Since 2021, the costs associated with labor, materials, and overall project execution have surged. Wages for skilled workers have increased by 20%, and the costs of engineering, procurement and construction (EPC) contracts have risen up to 25%. The ripple effects of the COVID-19 pandemic and geopolitical tensions have exacerbated these issues, causing delays in major projects like ExxonMobil and QatarEnergy’s Golden Pass LNG. These obstacles, while significant, also highlight the resilient demand for skilled labor and robust infrastructure in the LNG sector, underscoring the industry's potential for recovery and growth.
Regulatory and Environmental Pressures
Another layer of complexity is added by regulatory and environmental pressures. The Biden administration's pause on new LNG export terminal approvals has stirred concerns about the nation's reliability as an LNG supplier. This pause aligns with environmental groups' calls for a reduction in fossil fuel dependency. However, it has also prompted criticisms from industry stakeholders who argue that such delays could give a competitive edge to other gas-exporting nations like Russia and Qatar. While this regulatory uncertainty poses short-term challenges, it also opens avenues for strategic collaborations and innovations aimed at meeting both environmental and energy demands.
Strategic Partnerships and Foreign Investments
Amid these challenges, strategic partnerships and foreign investments are proving to be crucial in sustaining the momentum of U.S. LNG projects. NextDecade's NEXT Rio Grande LNG project, for example, has attracted significant investment from Abu Dhabi’s ADNOC and secured long-term offtake agreements with global energy giants like Saudi Aramco.
These collaborations not only provide financial stability but also reinforce the global significance of U.S. LNG in diversifying energy supplies. This trend of international partnerships is likely to continue, offering robust support to U.S. LNG projects and presenting investors with opportunities to participate in high-growth, globally integrated ventures.
Navigating the Future: Investment Opportunities
In light of these dynamics, investors should keep a close eye on leading U.S. LNG exporters like Cheniere Energy LNG, Shell SHEL and Chevron CVX. These companies are well-positioned to navigate the current challenges and capitalize on the growing global demand for LNG.
Cheniere Energy: Being the first company to receive regulatory approval to export LNG from its 2.6 billion cubic feet per day Sabine Pass terminal, Cheniere Energy certainly enjoys a distinct competitive advantage. The Zacks Rank #3 (Hold) company is primed for significant revenue and earnings growth on the back of solid operations and long-term contracts. Cheniere Energy’s gas supply deals for its Sabine Pass and Corpus Christi projects offer excellent cash flow visibility in the coming years.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shell: Shell’s long-term strategy revolves around LNG. This London-based firm bought BG Group for $50 billion in 2016 to become the world’s largest producer and shipper of LNG. With LNG export demand likely to rise significantly in the near-to-medium term, Shell’s position as a major supplier of LNG should help the company meet the fuel’s growing demand and help cash flow to improve.
Chevron: Chevron is another world-class operator of LNG. The giant Gorgon and Wheatstone developments in Australia are part of Chevron’s long-term strategy and are also its flagship LNG developments. These mega projects allow the supermajor to tap into the strong Asian LNG demand. Chevron is the operator of both projects — with a stake of 64.14% in Wheatstone and 47.3% in the Gorgon development.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Chevron Corporation (CVX): Free Stock Analysis Report
Cheniere Energy, Inc. (LNG): Free Stock Analysis Report
NextDecade Corporation (NEXT): Free Stock Analysis Report
Shell PLC Unsponsored ADR (SHEL): Free Stock Analysis Report
