Liquefied Natural Gas Ltd shares skyrocket: Is it time to buy?

The Liquefied Natural Gas Ltd (ASX: LNG) share price soared 14% today following a landmark decision by international oil group, the Organisation of the Petroleum Exporting Countries (OPEC), and an announcement by the company this morning.

Source: Google Finance

Source: Google Finance


OPEC Decision

Overnight, OPEC members, who include key oil-producing countries like Saudi Arabia and Iraq, agreed to their first coordinated production cut in eight years. OPEC will cut oil production by 1.2 million barrels per day by January 2017.

An OPEC decision has been on the cards since 2014, when oil prices began to tumble from over $US105 per barrel to a low of less than $US30 per barrel earlier this year.

Is it often said that much of the global oversupply can be traced back to U.S. shale oil producers, which use modern techniques such as ‘fracking’ to withdraw oil from previously unviable opportunities. Although some OPEC members have enormous resources of oil buried beneath their lands, which can be extracted using traditional methods at rock-bottom costs, some OPEC members like Nigeria rely on higher oil prices for their economy to grow at a healthy pace.

Liquefied Natural Gas Ltd’s Oil Price Boon

Shares of global oil companies shot higher on the OPEC news earlier today, but none more so than local oil producers listed on the ASX. Liquefied Natural Gas Ltd is uniquely placed to benefit from the oil production cut.

In addition to the OPEC news, this morning the company announced that its key U.S. asset, Magnolia LNG, has been granted access to export liquefied natural gas (LNG) to non-FTA approved countries. That means the company can export its LNG, produced locally in the U.S., to international customers which offer much higher prices. LNG prices are linked to oil prices, and Magnolia’s supply relies on a booming U.S. oil market.

Is it time to buy?

In my opinion, Liquefied Natural Gas Ltd remains a highly speculative investment at current prices because it is yet to generate any meaningful revenue from its gas export projects, which are yet to be constructed and take many years to build. While it has risen strongly in recent months, I would consider shares of companies like Santos Ltd (ASX: STO) or Woodside Petroleum Limited (ASX: WPL) first.

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Motley Fool Contributor Owen Raszkiewicz owns a share of Liquefied Natural Gas Ltd. Owen welcomes -- and encourages -- your feedback on Google+, LinkedIn or you can follow him on Twitter @ASXinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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