Buffalo Bill’s Civilized West Show
Commodities are pretty boring stuff, right? AI is a way more entertaining thing than aluminum. SAAS is a more exciting than gas.
The stuff that changes hands in these markets — metal, sugar, seed oil, gas etc. — is pretty vanilla. But moving it from one hand to another more often resembles the Wild West than it does something like Apple's pristine UI or Amazon's flawless logistics.
Your shipment could suffer a train heist or get caught up in a gun fight. Then there's pretty heavy pockets of fraud and corruption.
The natural gas market trots into town with its own shades of Wild West. You might find a supply partner on a wanted poster. Some gangsters might take your stuff. Others suppliers might struggle with reliability. Sometimes a supplier will just decide to send your boat somewhere else that will pay more for it. Or, if you're not careful, your plant might catch fire.
The customer's always right
Put yourself, for a moment, in the shoes of a utility that's just trying to deliver electricity or heat to people's homes. You have power plants that you need to run 24/7 for 15, 25, maybe 50 years. You're building lots more. You need gas. You probably don’t have it nearby. You need to ship it in from someone. But who?
Wouldn't you love to click a "subscribe and save" button and have your gas show up where you want them, when you want? Instead you have to rely on this band misfits? Not an easy assignment.
Old faithful
Getting a natural gas provider to play nice — to keep to its contracts — is a battle line in the market. It's the line that US-based Cheniere drew in the sand. Cheniere doesn't produces gas. It mostly doesn't deliver gas. It doesn't use gas for power. It just packages it — turns it from gas to liquid — so that its customers can get it where they need it, when they need it.
It's been doing this now for nearly eight years and has consistently delivered cargoes through every type of market — negative prices, regular hurricanes, a grab-bag of geopolitical scrapes. It's as close to "subscribe and save" as the gas market gets. Its reliability is what keeps a caravan of customers coming to its docks to sign up for long-term contracts that will keep the business humming for decades to come. Others still in that line will support the outfit's expansion ideas.
Building and running LNG liquefaction facilities is fiendishly hard. As Cheniere has succeeded in "innovating" not-messing-it-up it's attracted high-quality customers. Those customers have turned Cheniere's long-term supply agreements into something like bonds. Boring and reliable — far from the Buffalo Bill's Wild West Show vibe put on by most of the industry.
While investors worry about how not to light money on fire in AI or crypto, Cheniere is over here reliably delivering gas exactly so that its customers can light it on fire. And making lots of money doing it. Avoiding the chaos most of the industry packages with movable natural gas, Cheniere’s built a stable of customers who value that and will pay for it.
Reliability, it turns out, is something that generally rewards investors too. For patient investors, who can look past the next dust up, it's a trail that looks likely to lead to happy returns for a long time to come.
Disclaimer: None of this is investment advice. It's meant to illustrate ways LCM thinks about investing. Things that LCM decides are good investments for LCM and its clients are based on many criteria, not all of which are covered here. Some or all of LCM's ideas may not be suitable for other investors. LCM does not recommend investing either long or short any position mentioned. LCM may own positions in some of the companies mentioned. Some of its ideas will lose money — investing entails risk. See full disclaimer here.