News Analysis date published New: 
Monday, February 4, 2013 - 14:30
New Date created: 
Tuesday, February 5, 2013 - 15:22
New Date last updated: 
Monday, February 4, 2013 - 14:30

This Energy Company Could Help End the Massive U.S. Trade Deficit

Monday, February 4, 2013 - 2:30pm

Ask any economist about the future of America and you will 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 Treasury bonds -- which are basically IOUs financed by the government.

But the United States has been running a deficit 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 each recession 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 billion).

And what's the biggest culprit in the country's inability to balance the national checkbook?

Oil imports.

In 2011, oil imports cost the United States about $331.6 billion and accounted for 58% -- almost two thirds -- of the total trade deficit.

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?
As a stock picker, I wouldn't normally worry about larger macroeconomic trends. But given this scenario, one company stands out as a major player. In fact, this company could actually help spark the third industrial revolution and help solve the nation's debt problem, as Game-Changing 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 substantial margin, thanks to advancements in drilling techniques. And in the process, investors with foresight could make a king's ransom.

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 Asia.
So why are we sitting on so much money while the economy sputters along?

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 (NYSE: LNG).

That's not an exaggeration. Because of government licensing, Cheniere Energy is currently the only 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 LNG facility and is considering building two more to meet demand.
Though not yet profitable, the investing story here is all about potential. Analysts at Credit Suisse expect revenue 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 for earnings per share of $4.06 in 2017 mean a stock price of about $54, if the shares 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 Total (NYSE: TOT) 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 a lot 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 many investment 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.

P.S. -- Interested learning more about the North American Energy Boom? We've found three companies that could help put an end to the U.S. trade and budget deficits... solve the problem of rampant unemployment... put money back in the pockets of consumers -- and put far more money in your pocket as an early investor. Go here to learn more...

Joseph Hogue does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.