Liquefied Natural Gas Ltd (AX:LNG) Magnolia development is up to 30 months ahead of other US-based greenfield liquefaction plants in regulatory approvals, putting it in prime position for buyers/traders looking to take advantage of the expected rebalancing of the LNG market in 2022-23. With low capex/opex/gas prices, the project has the potential to be very lucrative for partners selling to Europe/Asia. As a result, we now expect LNGL to sign tolling agreements and move towards FID in 2018, with first production in 2023. We have updated our valuation, which falls from A$1.25/share (US$3.79/ADR) to A$1.00/share (US$3.23/ADR). On a longer-term basis, this valuation should grow as the project is de-risked by tolling agreements and moves towards first LNG.
2018 is a key year for the company
The last few years have been challenging for LNG traders with a supply glut and low oil prices depressing profits. However, increases in oil (and LNG) prices in the near term, and increasing confidence that the market will rebalance in 2022-23, should give added impetus to buyers. Magnolia is well ahead of its greenfield peers in regulatory approvals and in our view should therefore be in a good position to sign up long-term partner agreements in 2018.
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