Liquefied Natural Gas Ltd (ASX: LNG) has received a stamp of approval from one of the foremost value investing legends, with Seth Klarman’s Baupost Group taking a 6.7% stake in the company.
Baupost now owns close to 26 million shares in Liquefied Natural Gas, after several recent purchases, and despite the share price doubling in the past month.
The company’s flagship project is the Magnolia LNG project in Louisiana, USA. The project aims to process 8 million tonnes per year of LNG, using the company’s patented OSMR LNG liquefaction technology. At an estimated capital cost of just US$2.2 billion, the LNG plant is several orders of magnitude cheaper than the giant LNG plants already built and under construction in Australia.
Woodside Petroleum Limited’s (ASX: WPL) Pluto project cost an estimated $15 billion, while the company’s Browse Project is currently under redevelopment, after initial plans saw potential costs balloon to more than $50 billion.
Santos Limited’s (ASX: STO) Gladstone LNG project is estimated to cost US$18.5 billion, and while it is nearing completion, further cost blowouts can’t be ruled out. Origin Energy Limited’s (ASX: ORG) Australia Pacific LNG project is estimated to cost $24.7 billion.
For Liquefied Natural Gas, its Magnolia LNG plant is already situated close to three major underutilised gas pipelines, and the company should have no difficulty procuring the enormous amounts of gas it will need. The US is expected to become an overall net exporter of natural gas in 2018.
As a result, Liquefied Natural Gas expects the Magnolia plant to produce first LNG in 2018, and be the fifth US LNG plant to become operational. Construction is expected to take between 36 and 39 months.
But with the company’s market cap hitting $584 million after recent price rises, investors could face the prospect of overpaying, considering the substantial risks Liquefied Natural Gas still faces in getting its project into operation. Baupost’s investment could also mean there is still plenty of value left in the company.
Motley Fool writer/analyst Mike King owns shares in Santos. You can follow Mike on Twitter @TMFKinga
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