LNG: “You down with the TPP (Yeah You Know Me)”


This week we saw the formal announcement that the TPP has been agreed to by member nations. While the legislation is yet to be passed by the respective governments this was a historic, and major step towards a significant trading block. I wrote about what TPP could mean more broadly here, and highlighted the potential benefit to our dairy industry with A2M under the spotlight. While the news coverage remains sceptical at the lack of detail released, some companies have already begun to thrive.

Liquefied Natural Gas Limited (Unfortunately, we could not get stock quote ASX:LNG this time.) is one of these stocks. While too early to make a direct correlation the timing works well enough for me. As the name suggests these guys are all about that gas, in liquid form. While not part of the in vouge renewable energy focus of some, it remains a massive export for Australia to energy deficient developing countries.

With the much hyped announcement this week our high flying trade minister from Brighton released the following statement around resources and energy.

“Elimination of tariffs on butanes, propane and liquefied natural gas to Vietnam within seven years – Australian exports were valued at $9 million in 2014”

This line is lucrative to ASX:LNG and other operators in the space. Better access to the market, with lower tariffs will improve the margins of LNG producing companies, and improve the affordability of energy to these developing countries, which will in turn drive demand for the product. More broadly looking at these exports the government has stated that Australia exports over $45 billion of resources and energy products to TPP member nations, around 30% of the total exports of these products.

But we are here to talk about gas. Included in the announcement was that the highest value export from Australia to the TPP member countries is (wait for it) Liquefied Gas. Its worth about $16.7bn with Malaysia and Japan among those loyal customers. It is expected that all $16.7bn worth of exports will benefit from reduced tariffs and improved access to market. Now let’s get back to LNG and making bank.

Unfortunately for us the rapid rise in the price of LNG has already begun. It was stated the agreement was close on the 5th of October. We will call this day one. On day one LNG benefited from a price surge of $0.23 (16.3%). This rise was so meteoric that ASX called on LNG to explain the dramatic price change (to which they had no answer). Day two (AKA formal announcement day) was not quite exciting but still thrilling none the less, with a $0.08 rise equal to (4.9%).

You are probably wondering if it’s even worth your time. Well the interesting part here is that LNG was priced at $5 a share earlier in the year. The nature of companies like LNG is the price is volatile, and can be inflated on the expectation of good news (finding oil). With a number of projects on the go across Australia and out TPP friends Canada and USA let’s hope they get lucky and return to the glory days.

With a strong team in place and good projects in the pipeline this is a company I will be watching closely. Many analysts are suggesting LNG is a good option for the short term gain, and with a strong management team and solid strategy I tend to agree.