Short seller Jim Chanos of Kynikos Associates offered his latest short at the SALT conference in Las Vegas today: Cheniere Energy (LNG).
One of the big problems for Cheniere is that there has been no increase in demand for liquefied natural gas despite an increase in supply. “The great LNG demand dream has been a pipe dream, but supply keeps coming,” Chanos says.
Chanos summed up the bull case on Cheniere. That it’s a financing story, not an energy story. That there’s no commodity risk because of take-or-pay contracts. That there will be “big out-year utilization.”
The reality, however, is quite different, Chanos argues.Cheniere argues that it’s asset’s should have a 100 year life span, far above the 20+ of refiners. They also argue that there will be 100% utilization, when refiners typically have 85%, Chanos said. And it will be hard for Cheniere to turn a big profit by shipping LNG to Europe at current prices.
But even if you buy that,Cheniere is still “crazy expensive” compared to peers.Chevron (CVX), Royal Dutch Shell (RDS.A) and Australian firm Woodside trade between 5 and 6.3 times EV/EBITDA. Cheniere: 11.4 times. And while Chevron, Royal Dutch Shell and Woodside will be paying down debt, Cheniere’s will be growing its own, Chanos argued. “This is financial engineering gone crazy,” Chanos says. “[It’s] extremely skewed to the short side.”
Shares of Cheniere have jumped 6.2% to $34.75 today, while Chevron rose 1% to $102.12, and Royal Dutch Shell advanced 0.3% to $50.76.