LNG 0.00% 4.3¢ liquefied natural gas limited

Edison Research: Good start to the year

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    Latest analysis from Edison (who in the interests of full disclosure) are remunerated by LNG for their research.

    Liquefied Natural Gas (LNGL) has already announced two encouraging updates in 2017. On 30 January, the EPC contract with KSJV was extended to the end of June 2017, giving greater construction price certainty as and when the final investment decision (FID) is taken. On 23 January, it announced a Heads of Agreement (HOA) with KG LNG terminal in India for 4mtpa for 20 years. While non-binding, this suggests the company is making progress towards financial close for Magnolia’s 8mtpa export project. As it works to retain as much cash as possible until the FID is reached, LNG is making good progress towards monetizing the OSMR technology and Magnolia project. We leave our valuation unchanged, but note that if a binding contract is agreed with KG LNG it would be a major step towards realizing the significant potential of the Magnolia project. Bear Head (with all environmental approvals obtained) remains a further option on the growing LNG trade in years to come.

    KGL LNG terminal summary
    KGL is an ambitious Indian project to supply gas to the Andhra Pradesh-Orissa industrial region where VGS (the Indo-American company running the project) estimates there is close to 7,000MW of near-idled power capacity. According to VGS, the initial plans call for up to 4.47mtpa of LNG to be stored and regasified off the coast and piped to the industrial area. A second phase, dependent on market demand, could see an increase to over 8mtpa. We would not expect LNGL to provide this extra gas if the project expands as it would represent significant concentration and third-party risk; however, the area’s possible demand is encouraging.

    The project is a joint venture between VGS Group, Cavallo Energy and Exmar. Cavallo Energy is backed by Calpine, the largest generator of electricity from natural gas and geothermal sources in the US. It has a c $4bn market cap and is listed on the NYSE. Exmar is a c €440m market cap, Belgium-based shipping group.

    We are encouraged by the announcement of the non-binding HOA, and note that a binding agreement would move the Magnolia project directly towards a bankable solution then financial close (it has no further regulatory steps to fulfil). It is also worth noting that (while we do not change any assumption in our model), the credit rating of the offtakers may have an effect on the amount of debt that can be raised against the project, which may affect the equity required for Magnolia to be built. If more equity is required from LNGL, this may reduce the overall value for shareholders (in absolute and/or per share terms).

    As we all know, BTAs are the only game in town and whilst this may be the only HOA so far ann. I wouldn't be too quick to dismiss it, nor that others aren't progressing their own plans ...

    Full details available at
    http://www.edisoninvestmentresearch.com/?ACT=18&ID=17945&LANG=
    Last edited by Timbogold: 01/02/17
 
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