Time Piece
About three years. Maybe four. That's about the length of time the universe allows you to go between buying a new phone. It's that hundredth time it falls that cracks the screen. Or the battery life gets so short it would even annoy a mayfly. So, when you do buy a new phone you build-in the fact that you're paying $1,000, or whatever, for three years of functionality.
But those are the boundaries of phone buying — three or four years of a working phone for $1,000.
The joy from a new phone — speaking from my own experience — is limited. It’s directly related to how quickly it works pretty much like the phone it replaced. I'd rather have the old thing just keep working rather than paying a grand for the privilege of having basically the same features. Phones don't work that way, though. But some investments do.
History
Lamplighter's talked about time before. Sometimes, it's because things have gone sideways, quickly. Many successful investment stories though, have the opposite shape. They take a long time. And, in the end, they turn out well.
There's Cheniere Energy. It turns gas into liquid to ship it around. Everything in its business happens over a long time. It takes a long time to approve new facilities. It takes a long time to build them. It takes a long time to sign up customers. Even shipping the product can take a month. Investors don't think much of the company.
"Sure" they say, "Cheniere makes money today, but everyone wants cleaner energy. By the time Cheniere hits its stride, everything will be solar and wind powered. How long can it possibly keep going?"
"Not long" is their answer. Investors expect a short life for Cheniere — about a decade, maybe 15 years before it breaks like a phone.
Greener Pastures
The greener energy story is one that's been around for a while though. If you hop in a time machine and travel back a decade or so, you can see the withering devastation wrought on Cheniere by greener energy.
In that time, green energy boomed. Solar power exploded throughout the world. Global solar power generation in 2023 was 16 times what it was in 2013. Wind power expanded between 400 and 500% during that decade. Green technologies contributed more power faster than any other source of energy in history. Success!
What happened to Cheniere during that time?
It went from being a hairbrained and mismanaged basket case — a zero — to a money-printing model of good management. Not so devastating after all.
What comes next?
Fast Forward
You could make the argument that wind and solar will relieve the world of the need for LNG within the next decade. But it would be tough to explain away the 40mtpa of natural gas fired power plants planned and being built just in India. Never mind the expansions undertaken in Bangladesh, Pakistan, Vietnam, Indonesia and all through Asia. The utilities running these new plants expect them to hum for 30 or 40 years or longer. That gas can't be locally sourced.
All that demand and more is on top of what's used today — the demand that already ravenously consumes Cheniere's output, about 30mtpa.
You could make the argument that a nuclear renaissance or cold fusion break-through could tip the scales to keep natural gas in its fossil state tomorrow. Afterall, the newest US nuclear power plant began smashing atoms last year. The first one in seven years. But it took 12 years to build that project. And Cheniere would still have contracts with its customers running all the way past 2050.
On Time
A world powered by pristine, abundant energy is the goal. Lamplighter expects this to happen. At some point.
But, so far, it hasn't meant the demise of natural gas. The natural gas market has expanded right alongside alternative options. Customers have eagerly signed up to very long-term commitments — 10, 20 years — to ensure that they'll be able to get their hands on the stuff for decades to come.
Investors expect Cheniere to live life like a phone – useful, but short and then flame-out. Cheniere’s customers expect it to continue for decades to come. Since they’re the ones providing the cash, it’s a good bet to follow the money. The gap between the short time other investors expect Cheniere to survive and its customers signing up for business beyond 2050 provides an enticing opportunity to put money to work and bide time.
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.