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Liquefied Natural Gas Ltd shares soar 10%: Is it time to buy?

Credit: Pieter van Marion

What: The Liquefied Natural Gas Ltd (ASX: LNG) share price soared more than 10% this morning, joining a chorus of mid-cap oil and gas producers, such as Sundance Energy Australia Ltd (ASX: SEA) and AWE Limited (ASX: AWE), to be among the S&P/ASX 200’s (Index: ^AXJO) (ASX: XJO) top movers.

So what: Shares of LNG Ltd, a prospective US liquefied natural gas tolling and export facility owner, went on a wild ride in 2014 — soaring more than 1,400% — but the sunk more than 64% in 2015 as oil prices plummeted.

Now what: The company’s intention is to connect its facilities to shale oil networks in the USA. The facilities turn natural gas into LNG to compress it for storage and transport. Then, it will export the energy sources to lucrative international markets.

While LNG Ltd carries no commodity risk, it merely charges a fee per unit for conversion of gas to liquid, it needs to secure guaranteed customer contracts for its projects to remain feasible.

Unfortunately, given crude oil prices have fallen from over $US108 per barrel in June 2014 to around $US40 per barrel today, many high-cost US oil producers are feeling the pinch. Moreover, they are likely contemplating curbing output and scrapping expansion plans.

Being unable to secure the guaranteed supply from producers, LNG Ltd will have a tough time proving its business plan to creditors, whose money it’ll use to build its projects. Therefore, LNG Ltd shares are a high-risk investment proposition and not appropriate for risk-averse investors at this time.

A better buy than LNG Ltd

Forget LNG Ltd, This "dirt cheap" company. is growing like gangbusters, and trading on a 5.6% dividend yield, FULLY FRANKED (8% gross). With interest rates set to stay at these low levels for years to come, for income-hungry investors, including SMSFs, this ASX company could be the "Holy Grail" of dividend plays for 2016. Click here to get our FREE investment report, including the name of this fast growing ASX dividend share. No credit card required.

Motley Fool writer/analyst Owen owns shares of Liquefied Natural Gas Ltd.

Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest.

 Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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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