Seems to me this potential Chilean deal reinforces some key investment themes for me that serve to make it a little easier to hold this stock through what has been a historical low for energy and commodity stocks the world over:
Despite the gas glut in Asia, Latin America has always been a key target market for Magnolia given the regions growing energy needs and over reliance on dirty oil and diesel. Chile also has a FTA with the US so no problems in exporting and 30% of the projects capacity already signed up with end users. GNF also are investing large amounts in Chile to bring gas to more homes which shows that a demand profile is there in both industrial and residential use.
Stonepeak remains committed to infrastructure investment in the LNG space and so we can continue to be able to rely on them to front the capital for Maggy. They have $3.5bn ready to investment from their second fund.
EOS have also announced a strategic alliance with an undisclosed international energy company to act as strategic advisor as well as gas supplier to the project, potentially from Australia. The Chile FSRU would then have a mix of long term Henry Hub from Maggy, oil indexed from Australia and then spot cargoes. Its goes to show that LNG buyers are thinking about supply diversity as a hedge against energy price volatility. With LNG pricing so low we can expect projects to be more financially viable.
Given the above, and increased project development throughout Latin America in LNG, can we expect further BTA discussions happening in the background that we dont really know about. And the article mentions a SPA agreement (sales agreement as opposed to a tolling agreement) which could mean that Maggy is also looking to strike a long term supply deal with a US gas supplier to facilitate tolling. Locking in long term US gas supply may make it easier to market LNG tolling like perhaps the success Monkey Island LNG has had.
At current prices, any BTA or SPA should see a material increase in the share price as more confidence in the project flows through.
LNG Price at posting:
67.5¢ Sentiment: Buy Disclosure: Held
