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Why the Liquefied Natural Gas share price rocketed 32% higher today

One of the best performers on the All Ordinaries index on Monday has been the Liquefied Natural Gas Ltd (ASX: LNG) share price.

In morning trade the liquefied natural gas (LNG) producer’s shares rocketed as much as 32% higher to 32.5 cents.

They have since given back some of these gains but are still trading 14% higher at 28 cents at the time of writing.

Why did the Liquefied Natural Gas share price rocket higher today?

As well as getting a boost from positive investor sentiment in the energy sector after drone attacks in Saudi Arabia sent oil prices hurtling higher, investors have been buying Liquefied Natural Gas shares this morning after the announcement of a major supply agreement.

According to the release, Delta Offshore Energy and Liquefied Natural Gas have formed an alliance with the Bac Lieu Provincial Government in Vietnam to deliver an LNG-to-power project for the province.

The Delta-led power project includes the construction and operation of an LNG import terminal, 3,200-megawatt combined-cycle power plant, and delivery of power generation to the Bac Lieu Province. The integrated project is expected to commence operations in 2023 pending finalisation of anticipated government approvals.

Liquefied Natural Gas’ wholly-owned subsidiary, Magnolia LNG, will deliver two million tonnes per annum of LNG to Delta pursuant to a supply and purchase agreement, on a free-on-board basis for a 20-year term with options to extend the term.

Delta will then deliver gas to the power plant, generate electricity, and sell its output to the province pursuant to a power purchase agreement.

Liquefied Natural Gas managing director and chief executive officer, Greg Vesey, appeared to be very pleased with the agreement.

He said: “This agreement is a major achievement for the Magnolia LNG project as we progress our global commercial and marketing push toward a final investment decision. We are pleased to welcome Delta Offshore Energy, the Government of Vietnam, and the Bac Lieu Provincial Standing Committee to the Magnolia LNG project, as customers that value the advantages Magnolia enjoys. This agreement represents a significant advancement of our long relationships held with DeltaOE, the province, and Vietnamese leadership, including our earlier hosting of the province leadership and DeltaOE at the Magnolia site.”

Given the size of this agreement, it certainly could prove to be very lucrative for Liquefied Natural Gas if the terms are favourable. As a result, I can’t say I’m surprised with its strong share price gain today.

Also on the rise in the energy sector this morning are the shares of Beach Energy Ltd (ASX: BPT) and Santos Ltd (ASX: STO) with gains of over 5% each thanks to the aforementioned surge in oil futures.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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 Scott Phillips.