The U.S. conflict with Iran hasn't only caused a disruption for oil passing through the Strait of Hormuz, but it has also putting pressure on liquefied natural gas (LNG) supplies.
Despite a tenuous ceasefire agreement reached on April 7, the strategic waterway—which is responsible for 20% of global oil supplies—also supplies more than 80% of Asia's LNG as well as a notable amount of LNG for European markets.
However, Iran's retaliatory attacks on Qatar are the bigger cause of disruption to the global LNG market. Qatar exports around 10 billion cubic feet per day (Bcf/d) of LNG—roughly 20% of the world's supply.
For investors, the story is simple: due to global disruptions, demand for U.S. LNG exports is surging. Taiwan has already announced it will increase U.S. LNG imports starting in June, and more countries are expected to follow suit.
The United States has already planned to increase its LNG export capacity from 2025 to 2030, growing to roughly 30 Bcf/d. That’s what makes this development compelling. Currently, there isn’t much spare capacity at U.S. LNG export facilities, which will mean higher prices on existing shipments. Later, many companies will see volume gains as more supply comes online.
So, as crude prices fall, rather than moving away from energy stocks completely, a better strategy may involve a pivot away from oil stocks and toward companies that will help meet the LNG demand for the foreseeable future.
The Largest Player Answers the Call
Cheniere Energy (NYSE: LNG) is an obvious beneficiary of higher LNG prices. The company is the largest exporter of LNG in the United States, and CEO Jack Fusco says he is answering calls for help from Asia.
As previously noted, there’s only so much the LNG linchpin can do to increase supply. But it will make the current inventory more valuable. Investors will learn more when Cheniere reports earnings on April 30.
It’s important for investors to note that the LNG infrastructure disruption occurred after the company last reported earnings in February. At that time, there was some concern that Cheniere was priced for perfection after a multi-year run. That outlook may change as the firm is likely to meet or exceed the strong revenue and earnings growth seen in the prior quarter.
That optimism is backed up by analyst sentiment. In the last 30 days, multiple analysts have increased their price targets on LNG, with most far above the consensus price target of $291.88. Overall, the stock receives a Moderate Buy rating.
An LNG Growth Story With a Tailwind
If Cheniere is the established giant, Venture Global (NYSE: VG) is the company that could grow into this moment. The company converts U.S.-produced natural gas into LNG for export to international markets. That business model is perfectly suited for the current crisis.
Venture Global has potential expansion that is not finalized. But the current crisis provides meaningful momentum as the company tries to secure financing and finalize sales agreements. That pipeline of future capacity is exactly what global buyers are looking for right now.
The company is already moving quickly to lock in that demand. Venture Global recently announced five-year LNG purchase agreements with both Trafigura and Vitol, with both deals starting this year. That’s in addition to revenue of $4.5 billion last quarter, representing a nearly threefold year-over-year increase.
The combination of a surging demand environment and an aggressive expansion pipeline makes Venture Global one of the more compelling growth opportunities in the sector. It will also help investors with a longer time horizon to overlook the debt that the company carries on its balance sheet.
Analysts are bullish on VG stock, with a consensus price target of $15.70, representing an upside of over 10%. However, since March, nearly a dozen analysts have either upgraded Venture Global or raised their price targets, with many of those targets significantly above the consensus target.
Tapping Into LNG at the Source
The LNG export story doesn't end at the Gulf Coast terminals. For that fuel to be chilled, loaded, and shipped to energy-starved markets across Asia and Europe, it first has to come out of the ground. That is where Range Resources (NYSE: RRC) fits into the investment thesis.
Range Resources is a natural gas producer operating in Pennsylvania's Marcellus Shale—the largest natural gas field in the United States. The company reports roughly 30 years of undrilled inventory with a break-even price of $2.50 per million British thermal units. Approximately 25% of the company's natural gas sales go to the LNG export and premium Gulf of Mexico markets.
Direct exposure to LNG demand is a meaningful differentiator compared to large integrated oil majors like ExxonMobil (NYSE: XOM) or Chevron (NYSE: CVX). As LNG export volumes increase and prices remain elevated, demand for the upstream natural gas that feeds those export terminals rises accordingly. Range Resources is well-positioned to be a direct beneficiary of that dynamic over both the near and medium terms.
RRC is up around 28% in the three months ending April 8, and it's currently trading at levels close to its consensus price target of $43.06. Similar to other names on this list, though, price targets are rising. And with projected earnings growth of over 43% in the next 12 months, investors won’t be chasing RRC at this level—they're buying into real growth.
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The article "3 Energy Stocks to Watch Now as LNG Demand Surges" first appeared on MarketBeat.
