Company Overview: Liquefied Natural Gas Limited is engaged in the business of developing liquefied natural gas (LNG) export terminal projects in the United States, Canada and Australia. The Company's segments are LNG Infrastructure, and Technology and Licensing. The LNG Infrastructure segment focuses on identification and progression of opportunities for the development of LNG projects. The LNG Infrastructure segment includes project development activities, construction activities, and production and sale of LNG via offtake arrangements with external parties. The LNG Infrastructure segment includes the aggregation of the Magnolia LNG project, Bear Head LNG project and Fisherman's Landing LNG project. The Technology and Licensing segment is involved in the development of LNG technology, through research and development activities. The Company's subsidiaries include LNG International Pty Ltd, Gas Link Global Limited, LNG Management services Pty Ltd and LNG Technology Pty Ltd.


LNG Details
 
With changing industry dynamics and viable assets, Liquefied Natural Gas Ltd (ASX: LNG) aims to have a step change in its growth profile. The group is expected to improve the return on equity and other performance metrics given the macro scenario and the tracking of the group on its portfolio assets.
 
Agreements put in place: During the year, Liquefied Natural Gas Ltd reported that its wholly owned subsidiaries have signed an amended and restated ECA with Stonepeak while updated the related Magnolia LLC Agreement. The amended ECA and LLC Agreements would replace the current Stonepeak agreements which were signed in October 2013. Magnolia LNG had executed a Servitude Agreement with Turners Bay, LLC, a Louisiana limited liability company, for the right to deposit dredge spoils on certain tracts of land at Calcasieu Parish, Louisiana. Further, the Magnolia LNG project comprises the proposed development of an 8 mtpa or greater LNG export project on a 115-acre site, which is adjacent to a well-established LNG industrial canal (along the Calcasieu River shipping channel) in the Lake Charles District of Louisiana. The group continued to do marketing of Magnolia LNG capacity with several investment-grade, as well as some non-investment grade counterparties. LNG is also making major offtake negotiations for 20-year terms under liquefaction tolling agreements (LTA) or sales and purchase agreements (SPA). Additionally, the group continued to make technical improvements in the OSMR® technology and plant modular design to further control costs.
 
Bear Head LNG project highlights: Bear Paw project has a proposal to build and operate a 62.5 km (38.8 mile) natural gas pipeline to supply natural gas to the Bear Head LNG export terminal. The Bear Paw project would connect gas supply sources near Goldboro, Nova Scotia, to the liquefaction export facility. Canada’s NEB has approved Bear Head LNG’s application for authority to export up to 8 mtpa of LNG from Canada starting in 2019, with expanded authority for enabling the import of up to 14.2 billion cubic meters of natural gas per annum from the U.S., which would be sufficient to export up to 12 mtpa of LNG from Canada in 2024. Both licenses are for a period of 25 years. Meanwhile, the group continued to market capacity for Bear Head LNG to all three potential gas paths including U.S., offshore Nova Scotia and Western and Central Canada.
 

Bear Head LNG project’s Cost Competitiveness (Source: Company Reports)
 
Debt free position: The group has posted the net operating cash outflow of A$6.0 million in the first quarter of FY 18 ended 30 September 2017, as compared with the net operating cash outflow of A$4.5 million for the three months ended 30 June 2017. LNG has no debt while it believes that the liquidity management plan is on track to deliver as per the goals by the end of 2018 even though there are some potential risks in realizing the goal. LNG’s total cash balance is of A$38.2 million as at the end of the first quarter, as compared to A$44.5 million as at June 2017. The cash position reflects a net reduction in reported cash of A$6.3 million. The change in reported cash between periods shows the net cash outflows of A$6.0 million, a non-cash reduction of A$0.2 million on the back of the currency translation effect relating to movements in exchange rates. For FY17, the group’s net assets fell by A$26.5 million to A$54.4 million as at June 30, 2017 as compared to A$81 million as at July 1, 2016 impacted by slowdown of the group’s development activities as it worked to procure off take sales.
 
Magnolia indicated to be Shovel-Ready: Magnolia is the only fully-permitted U.S. Greenfield LNG project of the company. The company is proceeding with FERC Notice while got the Final Order. LNG requires all other ancillary federal, state, and local approvals and permits to start construction of the Project. LNG has fully wrapped lump sum, turnkey (LSTK) EPC contract with KBR / SKE&C joint venture and has done over $1.5 billion Equity Commitment Agreement with Stonepeak Infrastructure Partners.
 
Appointment of Chief Development Officer: The group has appointed Joseph (Joe) B’Oris as Chief Development Officer. He will be reporting to LNG’s Managing Director and Chief Executive Officer Greg Vesey and will have an overall responsibility of commercial development and marketing, tolling parties and offtake agreements, project development and strategy.
 
Suspended redomiciling activity in the US: Earlier, management thought over a possibility of redomiciling the Company to the U.S. along with a listing on either the New York Stock Exchange or NASDAQ. Management thought to leverage the strong capital markets in the US for development efforts in North America. However, in October 2017, the group’s Board decided to suspend all activities related to the redomicile of the Company in the United States. The group intends to focus on the current business and has also changed the registered office address to West Perth.
 
Strong market opportunity: The group is positive over the long-term LNG market opportunity given the replacement for coal. Moreover, LNG is getting demand from new markets like China, which is the largest growth market. Korea also indicated about its intention to expand LNG imports. LNG demand is also growing from other countries like India, Eastern Europe, Jordan and Morocco. Major countries from U.S. to Australia are also ramping up their projects for LNG supply to meet the rising demand. Many industries are also pursuing LNG for nontraditional applications like marine bunkering and long-haul transportation fuels that supplement traditional uses for LNG. On the other hand, project delays and plant outages impact the supply growth of LNG to a certain extent. The group continues to see an ongoing demand for long term contracts with LNG spot prices expected to rise. The LNG demand might continue to rise as additional uses are found for the fuel such as LNG bunkering. The overall industry trend is expected to benefit the group, and eventually the shareholders with a future exposure to 40% of portfolio with 20-years contract, 40% with three to five years’ contracts and 20% depending upon spot pricing. Overall, by year 2022, the industry experts are predicting that demand for LNG will exceed supply, and when that happens it’s going to be for a long time because there isn’t enough new supply coming on the market.
 

Market Fundamentals (Source: Company Reports)
 
Stock Performance: The shares of LNG have fallen 17.54% in the last three months (as on November 14, 2017) on the back of the volatility and fluctuating commodity prices. On the other hand, management reported that adverse weather conditions in Asia could lead buyers to secure a long-term LNG supply. As a result, the buyers have been more willing to have serious discussions, while the group is confident in signing offtake agreements with credit-worthy buyers later this year or early in 2018. Further, Magnolia LNG is poised to lead the next round of LNG projects, despite a slight bullish market. The group’s Bear Head LNG project progress is on track. According to Vesey, CEO of both the parent company, LNG and of Bear Head LNG, there are good chances of building the LNG export facility at Bear Head, Richmond County.
Given the scenario and industry trends, LNG stock recovered over 9.3% in the last four weeks (as of November 14, 2017) and we believe the momentum in the stock will continue in the coming months. We give a “Buy” recommendation on the stock at the current price of $0.46


LNG Daily Chart (Source: Thomson Reuters)

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