The Three Best Income Plays on the Future of Energy

Commodities Investing, Energy Investing

Russia’s invasion of Ukraine massively disrupted the European energy scene. The crisis revealed what I believe will be the energy story for the next decades: liquefied natural gas (LNG) is the fuel source to power the globe.

A recent report from Texans for Natural Gas highlights how the LNG market has shifted dramatically in response to Russia cutting off energy sources to western Europe.

Let’s take a look at this report – and how to invest for wealth and income from this trend…

Here are some points from the report:

  • America drastically increased its LNG exports to Europe: 74% of all U.S. exports went to Europe in the first half of 2022. In 2021, exports to Europe only represented 34% of U.S. LNG exports in that same period.
  • The U.S. became the world’s largest LNG exporter in the first half of 2022, with the primary destination of U.S. LNG exports shifting Asia to Europe.
  • Europe must continue to build LNG infrastructure that lets it turn away from threatening foreign actors like Russia.

Liquified natural gas, when “regasified” into natural gas, provides a clean burning energy source that can be used to generate electricity or heat. The challenge with LNG is the massive infrastructure required for liquefaction, transportation, and regasification. However, with the infrastructure in place, LNG can be produced and transported to wherever it is needed most—or wherever it will fetch the best price.

The U.S. contains massive natural gas reserves. Energy companies in the U.S. have the infrastructure that allows the liquefication and shipping of LNG to all parts of the world.

Here are some LNG-focused investment ideas:

Over the last 15 years, Cheniere Energy (LNG) has invested more $20 billion to build the world’s second-largest natural gas liquefaction facility (it has two facilities in total). At Cheniere’s current production level, the company is shifting from reinvesting all free cash flow to slower production growth, combined with paying dividends to investors. Cheniere is the premier stock for investors looking to have LNG exposure.

In a recent presentation, Cheniere noted: “Global demand growth projected by 2040 [is] expected to drive the need for significant incremental LNG supply beyond capacity currently operational and under construction.”

Flex LNG Ltd. (FLNG) is an LNG shipping company with a fleet of thirteen fuel-efficient, fifth-generation LNG carriers. Like many shipping stocks, Flex LNG pays large dividends and currently yields 8.6%.

And finally: Over the last several years, New Fortress Energy (NFE) has been building an end-to-end LNG infrastructure network. The company turned EBITDA positive in 2021 and will generate more than $1 billion of EBITDA this year; New Fortress is forecasting $2.5 billion next year.

Global energy usage is not a static number; as populations grow and economies grow (especially in the second and third world), energy demand will increase. LNG is the energy source that can meet the growing demand for clean available fuel.