Liquefied Natural Gas Limited shares jump: Here's why

Up 1,637% in the past 12 months, is there more to come for Liquefied Natural Gas Limited (ASX:LNG)?

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published September 30, 2014 3:10 pm AEST

Liquefied Natural Gas Limited (ASX: LNG) shares have popped more than 3.5% in mid-afternoon trading to $4.11, while the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) is trading up just 0.2%.

Still, that 3.5% jump is nothing compared to the 1,637% gain in the company's shares over the past 12 months. To put that into perspective, a $10,000 investment in LNG on October 1, 2013, would have risen to $163,700 today.

The company has released a string of good news in recent weeks, including the appointment of Mike Mott as Chief Financial Officer (CFO) yesterday, extended the Managing Director's contract out to June 2017, and an extension of the site lease for the company's proposed Fisherman's Landing Liquefied Natural Gas Project at Gladstone, Queensland.

But Fisherman's Landing is not the company's flagship project – rather it's the Magnolia LNG project currently under development in Louisiana, US that is receiving the most attention.

Liquefied Natural Gas has developed its own proprietary technology that allows lower cost, more efficient LNG processing facilities. The Magnolia LNG project is expected to require capital of around US$2.2 billion to produce 8 million tonnes of LNG annually.

By comparison, Woodside Petroleum Limited's (ASX: WPL) Pluto project cost around $15 billion, while Chevron's Gorgon project's estimated costs are currently at US$54 billion – and it's not complete yet. Pluto currently has one plant (train) processing around 4.3 million tonnes of LNG each year, while Gorgon is expected to produce 15.6 million tonnes per annum.

Back in June this year, a number of high profile US investors took substantial stakes in the company, with the Magnolia LNG project tipped to be one of the first US LNG export plants when it becomes operational in 2018.

It seems clear that they plenty of faith in Liquefied Natural Gas (the company), despite the company yet to earn a cent of LNG revenue. The attraction appears to be a combination of its proprietary technology, plus the booming cash flows that should come once the Magnolia project is up and running.

If everything goes to plan, $4.11 may still appear to be a cheap price, but there are some substantial risks still to be overcome.

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