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Trade War Fears Could Impact Cheniere Energy’s Market Performance

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Cheniere Energy’s recent market performance

Cheniere Energy (LNG) stock saw a sharp decline on March 22, 2018, amid increased concerns about a full-blown trade war between the US and China. Cheniere Energy fell 3.8% in a single trading session on Thursday, while the Alerian MLP ETF (AMLP) and the Energy Select Sector SPDR ETF (XLE) fell 2.5% and 2.1%. At the same time, the SPDR S&P 500 ETF (SPY), which represents broader US markets, fell 2.5%.

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The decline came after the US slapped tariffs on Chinese imports worth ~$60 billion. China retaliated with a proposal to increase tariffs on US imports worth $3 billion including items like wine, fresh fruit, dried fruit, and nuts. However, liquefied natural gas didn’t find a place on the list of 120 items proposed for increased tariffs from China. Liquefied natural gas would likely be the last item added to the trade war. China has a current initiative to move towards a cleaner burning fuel due to high pollution levels in the country. Cheniere Energy has multiyear long-term contracts with its Chinese counterparts fixed at a predetermined rate.

The sentiment might remain negative. However, the trade war retaliations likely won’t impact Cheniere Energy’s liquefied natural gas exports.

Overall, Cheniere Energy has lost 4.9% in 2018. Despite the recent sluggishness, Cheniere Energy continues to outperform AMLP and XLE. AMLP and XLE have lost 13.1% and 7.0% year-to-date.

Cheniere Energy’s historical performance

Cheniere Energy has gained 17.0% in the past year. Cheniere Energy Partners (CQP) has lost 9.5%, while Cheniere Energy Partners LP Holdings (CQH) has gained 16.7%. Cheniere Energy owns the general partner and limited partnership interest in Cheniere Energy Partners through Cheniere Energy Partners LP Holdings. Cheniere Energy Partners’ underperformance relative to Cheniere Energy and Cheniere Energy Partners LP Holdings could be attributed to its complex structure.

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Cheniere Energy has outperformed AMLP and XLE by more than 4,215 basis points and 1,982 basis point, respectively, in the past year. Cheniere Energy’s outperformance relative to XLE could be attributed to its strong cash flow growth protected by long-term fee-based SPAs (sale and purchase agreements) and the timely completion of liquefied natural gas trains. The company entered into two new SPAs with Trafigura and China National Petroleum mainly for Train 3 at Corpus Christi since the beginning of 2018.

Series overview

In this series, we’ll discuss Cheniere Energy’s technical indicators and price forecast. We’ll also discuss Cheniere Energy’s valuations and analysts’ recommendations.

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