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Cheniere Energy ($LNG)
$LNG Deep Dive: Why Wall Street is completely wrong about Cheniere
Currently selling for **$240**
Really worth > $300
I am going to drop my research for anyone to read. I am looking for flaws in my research. I think there is a really good opportunity investing in this company, feel free to join me. Would love to have several real professionals leave feedback in the comments on if they agree or why they disagree. I will start with what’s pushing it down and then explain the positives further.
Current Major Positives ($LNG)
1. $10 Billion in allotted buy backs
2. 20 Year Take or Pay contracts (**Price Paid to Cheniere = 115% of Henry Hub + Fixed Liquefaction Fee)**
3. 10% – 15% of company LNG sold from U.S Spot price to International Spot Prices Making the Spread
United States: $2.88 Europe: $14.50 Asia: $18.81
4. New Expansions being completed Corpus Christi
5. 20% world Supply Demand currently gone.
a) Natural gas can’t be stored like oil, so unlike oil that is getting pumped and filling up massive reservoirs behind the Strait of Hormuz natural gas isn’t being saved. So Qatar is the major facility that by itself produces about 1/5 of the world supply and it is currently completely shut down. It was damaged and won’t run at full capacity for 3-5 years. Since they can’t store the natural gas the entire facility has had to be halted and nothing is being made for transportation. So even if the Strait opens there isn’t massive amounts of supply that will instantly hit the market.
6. Also Governments store oil reserves Natural gas has a different story which means there is massive demand for the missing world supply. (Cheniere is the best company to benefit from the liquid natural gas missing demand. unlike other big companies Cheniere doesn’t have any contracts with any oil or natural gas from the Iran War.)
Current issues pushing down the ($LNG) stock price
1. Earnings Miss and Headline Shock (Paper Loss, this rolls off and leads to positive cash upon delivery.)
2. Insider sellers (sold near highs, but not due to the company, and they still own large positions)
3. Oil price fluctuation
So the Earnings miss was just headline shock. Because accounting rules force Cheniere to revalue its long-term gas purchasing agreements when natural gas prices fluctuate, it created a massive, temporary paper loss on the balance sheet—even though the actual business operations remain highly profitable
**The Mechanics of the "Roll Off"**
1. **The Paper Phase (Mark-to-Market)**: Before a cargo leaves the dock, accounting rules (ASC 815) force Cheniere to estimate the value of its future contracts based on current, highly volatile market prices. If natural gas prices drop, Cheniere must post a massive temporary "paper loss" on its balance sheet for those future quarters.
2. **The Delivery Phase (The Roll Off)**: The moment physical delivery occurs, the estimated derivative contract is officially closed out. The non-cash paper value is reduced to zero (it rolls off).
3. **The Cash Realization**: Cheniere recognizes the actual fixed tolling fee from the customer as **physical LNG revenue**. The temporary paper loss becomes an irrelevant memory, replaced by concrete, realized EBITDA
The reason this shows immense potential profit is because **the physical cargo contracts are completely unchanged.**
Because natural gas prices dropped, Cheniere will now buy its physical input gas at a much lower cost than originally anticipated. When the physical delivery date arrives, two things happen simultaneously:
1. **The Derivative Rolls Off**: The $4.8 billion paper accounting loss is reduced to zero and vanishes from the balance sheet.
2. **Extreme Margins Are Realized**: Cheniere buys the ultra-cheap physical gas, liquefies it, and sells it to its international buyers at the high, fixed contract price.
**The Math**: The paper "loss" on the hedge is exactly equal to the *savings* Cheniere will achieve on the physical gas purchase in the future. The deeper the paper derivative loss today, the lower their future fuel costs will be, ensuring massive, high-margin cash flow upon delivery.
As of today cost of Liquid natural Gas
United States cost: $2.88
Europe Cost: $14.50
Asia Cost: $18.81
**1. Different Pricing Mechanisms (The Henry Hub Model) \[**[**1**](https://www.oilpriceapi.com/compare/natural-gas-vs-oil)**\]**
Historically, global gas was "oil-indexed," meaning its price rose and fell with crude. Cheniere completely disrupted this model. \[[1](https://oilfieldwitness.org/the-end-of-the-u-s-lng-bubble/), [2](https://www.cmegroup.com/openmarkets/commodities/2021/how-the-u-s--became-the-world-s-lng-price-setter.html)\]
* **The Formula**: Cheniere buys domestic U.S. natural gas and sells it to global buyers for a fixed fee (usually $2.25 to $3.50 per MMBtu) plus exactly **115% of the U.S. Henry Hub natural gas price**.
* **The Insulation**: Because their revenue is strictly tied to U.S. natural gas benchmarks plus a locked-in tolling fee, fluctuations in Brent or WTI crude oil prices do not alter Cheniere's contract margins or cash flow. \[[1](https://www.reuters.com/article/legal/government/cheniere-signals-new-lng-pricing-structure-with-apache-deal-idUSL8N23A5DN/), [2](https://www.cmegroup.com/openmarkets/commodities/2021/how-the-u-s--became-the-world-s-lng-price-setter.html)\]
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* In other words its currently recession proof
**2. Infrastructure Bottlenecks vs. Global Fluidity**
* **Oil is Highly Fluid**: Crude oil is easily stored, loaded onto standard tankers, and shipped anywhere in the world instantly. This makes it a unified global commodity deeply sensitive to macroeconomic factors, like OPEC decisions or international trade routes.
* **LNG is Fixed and Capital Intensive**: Natural gas cannot simply be poured onto a standard boat. It requires multibillion-dollar super-cooling liquefaction terminals (like Cheniere's Corpus Christi facilities) and specialized cryogenic vessels. Its trade is localized by physical pipeline and terminal limits, detaching it from day-to-day fluid oil movements. \[[1](https://www.oilpriceapi.com/compare/natural-gas-vs-oil), [2](https://www.youtube.com/shorts/NzBqH8E1sTQ), [3](https://lngir.cheniere.com/sec-filings/annual-reports/xbrl_doc_only/4043), [4](https://lngir.cheniere.com/news-events/press-releases/detail/339/cheniere-reports-first-quarter-2026-results-and-raises-full)\]
**3. Totally Separate Drivers of Demand**
* **What Drives Oil**: Global transportation, gasoline consumption, aviation demand, and manufacturing activity.
* **What Drives LNG**: Powering specialized industrial manufacturing, electricity grid demands, and heating infrastructure. In fact, massive structural shifts—such as the **surging power consumption of AI data centers**—are heavily driving demand for natural gas generation, a dynamic that has no bearing on standard crude oil usage.
**Time for the real positive but in more detail**
This next section is how they get paid
**1. The Variable Cost Pass-Through (The Formula)**
Under Cheniere’s long-term Sale and Purchase Agreements (SPAs), the price a foreign buyer pays for LNG is strictly formulaic:
**Price Paid to Cheniere = 115% of Henry Hub + Fixed Liquefaction Fee**
* **How it works:** The 115% component is specifically designed to cover the exact cost of the feedstock gas Cheniere must buy in the U.S. open market plus an extra 15% to account for gas consumed during the physical cooling process (fuel gas shrinkage).
* **The Result:** If Henry Hub (U.S. domestic gas) spikes from $2.00 to $8.00, Cheniere simply passes 100% of that commodity cost directly to the buyer. Cheniere's profit margin is entirely insulated from U.S. price inflation.
**2. The Take-or-Pay Guarantee**
Cheniere’s ($LNG) absolute floor of cash flow is driven by the **Fixed Liquefaction Fee** (typically $2.25 to $3.50 per MMBtu).
* Under the [take-or-pay clause](https://uk.practicallaw.thomsonreuters.com/Glossary/PracticalLaw/Id849bfb9753511ebbea4f0dc9fb69570), even if domestic U.S. prices spike so high that international buyers decide it is too expensive to lift the cargo, **the buyer is still legally required to pay Cheniere the fixed fee**.
* Cheniere gets paid its core profit margin whether the gas flows or stays in the ground.
So these contracts are locked in for 20 years. And the company normally leaves 10% - 15% of their supply to make off the spread of spot prices which if you look above is currently amazing. The company is also currently locking in new 20 year contracts at record profits. Side not almost all of the long term debt is already fixed for the current expansions (why is this important is interest rates going up won't affect the company). Second side not natural gas prices are so low, and the United States is in such a glut that some companies are paying Cheniere ($LNG) to take the gas (double dipping).
Okay time for just shot gunning it all out there
New pipeline dates and train completions Cheniere Energy ($LNG) is in the final mile of its massive Corpus Christi Stage 3 Expansion Project in Gregory, Texas. This specific development consists of seven midscale liquefaction units (Trains) designed to add over 10 million tons per annum (mtpa) of brand-new export capacity
So 20% of the world missing supply problem. As you read you can’t just store it anywhere. And it boils off so you can’t deliver it by truck. So time for facts, there is two facilities that liquefy natural gas stuck behind the Strait of Hormuz (1/5 of the world’s natural gas). There isn’t any infrastructure to store it like there is for oil so the months that have already passed hasn’t just seen it back up in the straight it’s not even prepped. The supply for that time is gone. They can’t deliver over land right now because the infrastructure isn’t there. It’s also in a war zone. Which by the way one of the facilities was hit which will take by estimates 3-5 years to fix. And they will be a constant target for Iran.
If the Strait of Hormuz opened today it wouldn’t change the liquid natural gas market like it would oil. Because of the current damage to one of only two facilities in the Persian Gulf. (Ras Laffan LNG Complex (Qatar) makes 20% of world supply, and Das Island ADGAS Plant (United Arab Emirates) makes 1.5% of Global Supply). Of course Qatar’s facility would be the one hit. So this whole war has led to Europe and Asian nations realizing that not only oil but their supply route of natural gas has a single point of failure. So now the nations are scrambling to diversify and find the supply elsewhere. The United States is the safest place for the world to purchase it and we are in a glut of natural gas. So companies like Cheniere Energy ($LNG) are the best positioned for growth and success.
Now to speak some truth no one wants to hear. There are three major players right now that really dictate what Iran does under the Supreme Leader Mojtaba Khamenei who’s more like a chairman of the board. You have the current President of Iran is Masoud Pezeshkian who is the civilian administrator and the public-facing diplomatic voice, The Supreme National Security Council (SNSC) Mohammad Bagher Zolghadr who is over the regular military, and the real current power house the IRGC High Command.
The president has no military power and he’s the one we are negotiating with. Then you have the Zolghadr who has the hard lines of zero concessions and he is one of the main individuals over the main military. Then there is the IRGC which is an extreme religious ideology military and they are more like extremist that will never concede. I left at the very bottom more details on the IRGC to give you a detailed explanation
So peace talks are a front of doing nothing but buying time for each side. Even if a deal was signed today the IRGC and the National Security Council won’t abide by it. The IRGC will act like a large militarized terrorist organization going forward. So if a deal is signed they will still attack ships and still lay claim to the Strait (I see this as a forever problem). Which leaves us with either the blockade stays up for some time, war, fines to get through the Strait, and the increased insurance cost for tankers that will still drive up prices or keep them elevated. There will probably be several of the above happen. So I don't see a fix in the near term probably months other than political headlines. I also am of the belief that the entire supply chain of all goods and services has yet to truly feel the effects of the missing oil supply and this stock I think is well positioned for a bullish future as well as having the ability to weather a recession. Side note: Iran is currently burning off their natural gas so they can keep the oil fields operational. The United States is using the possibility of a peace deal to lower paper prices.
So I think current price targets are very feasible as what the actual current values should be. I also think that if you do the math using the Non-GAAP p/e avg ratios, which takes out the derivative issue gives a higher number. Please leave educated feedback. I leave you with the current Hardliners for the war and after that a detailed explanation of the IRGC who will be the real deciding factor no matter what negotiations are set.
**President Trump’s Hard Lines on Iran (The U.S. Demands)**
The Trump administration has established an unyielding set of baseline conditions for any diplomatic resolution, viewing the current maritime tension from a position of economic and military dominance.
* **Complete De-Enrichment**: Iran must permanently dismantle its entire uranium enrichment infrastructure and surrender its current stockpiles of highly enriched nuclear material.
* **Unconditional Gulf Access**: Iran must immediately lift all naval restrictions, checkpoints, and tolling systems in the Strait of Hormuz, guaranteeing safe, unrestricted transit for all international commercial vessels.
* **Disarmament of Proxies**: Iran must completely halt all financial, intelligence, and military funding to its regional proxy networks, including the Houthis, Hezbollah, and Iraqi paramilitary groups.
* **The "No Concessions" Mandate**: The United States will not lift any core economic or banking sanctions, nor will it release frozen assets, until a comprehensive treaty is signed and physically verified by international inspectors.
**The IRGC High Command’s Hard Lines (The Iranian Demands)**
The Islamic Revolutionary Guard Corps (IRGC) and the Supreme National Security Council (SNSC), spearheaded by hardliners like Ahmad Vahidi and Mohammad Bagher Zolghadr, are operating under the thesis that the West cannot survive a prolonged energy blockade. Their conditions are entirely non-negotiable:
* **Sovereign Control of the Strait**: Iran demands permanent, absolute recognition of its legal and military oversight over the Strait of Hormuz, maintaining the right to inspect or toll traffic passing through its territorial waters.
* **Immediate Sanctions Wiped Clean**: The United States must permanently lift all secondary economic sanctions, banking freezes, and shipping blacklists before any direct diplomatic talks can begin.
* **Asset Release & Reparations**: Total, immediate repatriation of all frozen Iranian assets worldwide, alongside a finalized legal framework for the U.S. to pay multi-billion dollar economic reparations for infrastructure damages.
* **Defense Retention**: Iran will not negotiate on, reduce, or dismantle its ballistic missile program or its domestic nuclear research development.
* **Complete Western Military Exit**: The U.S. Navy and allied coalition forces must permanently withdraw all aircraft carriers and naval warships from the Persian Gulf and the Gulf of Oman.
**Who is the IRGC so you know what we are really dealing with.**
**1. Origins and Historical Foundation (1979)**
Following the 1979 Islamic Revolution, Ayatollah Ruhollah Khomeini signed an executive order establishing the IRGC.
· **The Protective Counterbalance**: Iran's new political leadership harbored deep suspicions toward the conventional armed forces (*the Artesh*), which had been organized under the overthrown, American-supported monarch. To protect the developing state and neutralize any potential military uprisings, the IRGC was established as a parallel defense body.
· **Constitutional Partition**: The IRGC's legal status was institutionalized by Article 150 of Iran's national constitution. This document divides military duties: the *Artesh* safeguards geographical boundaries, whereas the IRGC holds the legal duty to defend the revolutionary system and its political outcomes.
· **The Command Structure**: The branch acts outside the jurisdiction of the executive cabinet, the judiciary, and parliament. It answers directly and exclusively to the Supreme Leader.
**2. Primary Objectives and Mandates**
The defense network balances two primary responsibilities: preserving the ruling religious system at home and projecting geopolitical leverage across the Middle East. This operational blueprint relies on five major pillars:
**A. Internal Stability and Domestic Policing**
The group functions as the ultimate line of defense against domestic unrest or civilian political opposition. Internal operations are carried out primarily via the **Basij**, a expansive, community-level paramilitary organization. The Basij deploys surveillance, neighborhood intelligence, and physical crackdowns to end public protests.
**B. Transnational Ideological Expansion**
Spreading Shia political islamism beyond Iran's borders remains a core objective of the state. The group drives this strategy through its external deployment arm, the **Quds Force**. Rather than initiating large-scale conventional invasions, the Quds Force establishes, equips, and funds regional proxy factions. This irregular alliance network encompasses Hezbollah inside Lebanon, the Houthi movement within Yemen, and several Shia paramilitary groups throughout Iraq.
**C. Asymmetric Weaponry and Regional Deterrence**
To compensate for its outdated conventional air and ground machinery, the military entity capitalizes on unconventional warfare. The organization oversees Iran's domestic development of precision drones and ballistic missile stockpiles, alongside its offensive digital warfare programs. Additionally, its naval arm patrols the **Strait of Hormuz** to maintain strategic leverage over international energy supply chains.
**D. Corporate Consolidation and Funding**
Following the conclusion of the Iran-Iraq War in 1988, the branch successfully integrated into civilian infrastructure markets. Utilizing major engineering firms such as *Khatam al-Anbiya*, economic investigations indicate the group holds financial control over an estimated 25% to 50% of national industry, including maritime shipping, oil development, housing construction, and digital communications. This independent commercial system generates funding for overseas operations while shielding revenues from Western economic blockades.
**E. Domestic Espionage and Security**
The organization runs an autonomous Intelligence Organization separate from civilian ministries. This entity directs extensive security wiretapping, monitors domestic dissidents, and handles counter-espionage tasks, frequently wielding more political power than the official national Ministry of Intelligence.
**Works Cited**
Council on Foreign Relations. "Iran’s Revolutionary Guards." *CFR Backgrounders*, Council on Foreign Relations, New York, NY. [cfr.org](https://www.cfr.org/backgrounders/irans-revolutionary-guards).
Deutsche Welle. "How Iran's Revolutionary Guard Controls the Economy." *DW Business News*, Deutsche Welle, Bonn, Germany. yahoo.com.
Middle East Institute. "The Axis of Resistance: Iran's Proxies and Partners." *MEI Policy Papers*, Middle East Institute, Washington, D.C. [mei.edu](https://mei.edu/backgrounder/axis-of-resistance/).