Investing in oil and gas companies such as Woodside Petroleum Limited (ASX: WPL), Oil Search Limited (ASX: OSH) and Santos Ltd (ASX: STO) as well as integrated energy company Origin Energy Limited (ASX: ORG) is becoming more than anything a play on the future of Liquefied Natural Gas (LNG), with all 4 of these companies investing billions of dollars in developing a range of LNG projects.
So far the strategy appears to be paying off – from the market’s point of view at least – with each firm’s share price beating the 10.6% return from the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) over the past year.
While the line from these four companies is overwhelmingly positive about the future benefits which will accrue to shareholders, there is cause to be nervous that an adequate return on investment will be achieved…
Firstly, Russia and China just signed a gas deal muted to be worth around US$400 billion which will see Russia supply gas to China at an estimated price of US$9.90 per unit (MMBTU). In comparison Australian LNG is estimated to cost around US$13 per unit.
Secondly, it’s not just the cut price supply deal with Russia that will impact globally traded LNG prices, but also the significantly lower cost structure of the United States burgeoning shale gas industry which is rapidly converting LNG import terminals into LNG export terminals.
Is our top stock for 2014 in your portfolio yet?
For oil & gas investors the devil will be in the detail. If Woodside, Oil Search, Santos and Origin have signed attractively-priced contracts then they should be ok, but in a world of lower LNG prices, the risks appear to be mounting against Australia’s LNG producers.
Our experts here at The Motley Fool Australia have just released a fantastic report, detailing 5 dirt cheap shares that you can buy in 2020.
One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…
Another is a diversified conglomerate trading over 40% off it's high, all while offering a fully franked dividend yield over 3%...
Plus 3 more cheap bets that could position you to profit over the next 12 months!
See for yourself now. Simply click here or the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.
Motley Fool contributor Tim McArthur owns shares in Origin Energy Ltd.