The rise of China as an economic superpower has been the main investment theme for the past decade. Whether discussing the growth prospects of water heaters or smart phone manufacturers, the world’s most populous country represents an untapped potential. The same is true for the country’s energy consumption.
The International Energy Agency predicts that from now until 2040, China’s energy consumption has already taken a leading position in the world and will more than double. Although almost all energy sources are expected to grow, many investors have focused on the country’s key future for energy investment in nuclear power. After all, atomic energy is largely seen as a direct replacement for dirtier coal and may help alleviate air pollution.
However, the inherent nature of the Chinese nuclear industry and the poor fundamentals of the uranium market have resulted in very few opportunities for individual investors. This is why companies that want to increase their energy demand in the market should pay attention to liquefied natural gas (LNG) rather than nuclear power companies. Here are a few stocks that you should consider.
Why China’s nuclear growth is difficult to invest?
In the paper, the expansion of China’s atomic energy seems to be an incredible opportunity. According to the World Nuclear Association, there are currently 38 nuclear reactors in operation in the country and 20 are under construction. This accounts for 35% of all reactors under construction worldwide. When all reactors are online, the country will have about 88 gigawatts of nuclear capacity.
This is exactly what many investors have been looking for to promote the prospects of Cameco (NYSE: CCJ), the world’s largest listed uranium miner, due to the closure of reactors in Japan, the United States and Japan. After the uranium demand was greatly reduced, Germany. Despite the company’s efforts to reduce operating costs and wait for storms to occur, such as closing large mines and reducing other production, the company’s share price has fallen by 34% over the past three years.
Unfortunately, China’s nuclear growth may exceed Cameco. This is because the country is purchasing most of the uranium supply from the world’s leading supplier, Kazakhstan. Kazakhstan has a long history of oversupply in the market, and with all future output increasing directly into China, global prices may not have much upward pressure.
This traps investors. With the exception of Cameco, there are no truly famous stocks that allow investors to enter the global uranium or nuclear industry, and certainly not China’s atomic energy growth. The country is developing its own reactor and nuclear power infrastructure supply chain, and then anticipates its global exports.
To make a long story short, individual investors are not a good entry point in this highly discussed trend. This is why investors should turn their attention to China’s LNG imports.
LNG offers investors better opportunities
Most analysts predict that with the new production capacity coming on line, the global LNG has unexpectedly increased in recent years, but the reality has even surpassed the most bullish forecast. In 2017, the global LNG trade volume exceeded the forecast of 26%. The main catalyst: China’s imports last year was only 40 million metric tons (mtpa). In comparison, it was only 100,000 tons in 2010 and 200,000 tons in 2015.
To be fair, some incredible growth is due to the unusually cold winter in the north of the country, suggesting that investors will not necessarily repeat itself in 2018. However, the demand for natural gas in China is growing every year this century. Before the country’s own shale gas production can start to make meaningful production, China will continue to rely heavily on LNG imports, which accounted for more than 20% of the total amount last year.
For investors, this is good news. Unlike China’s ambitious nuclear power program, China’s demand for LNG is increasing and they will not lack opportunities.
Some of the world’s largest energy companies have invested heavily in LNG, which is expected to be one of the fastest growing energy sources in the coming decades. Royal Dutch Shell (NYSE: RDS-A) (NYSE: RDS-B) began commercializing LNG in the 1960s. It is well-positioned and its major projects span the globe. This includes Australia, the world’s second largest LNG exporter, and one of the most coveted Asian markets. If the projects there can reduce costs, then this is not easy for Asian countries.
Royal Dutch Shell is approaching the launch of its majority-owned Prelude project, a floating LNG project located about 125 miles off the coast of Australia. Prelude will fully produce approximately 3.6 million tons of liquefied natural gas, which will provide all of Hong Kong’s annual natural gas demand. For liquefaction equipment, this figure is relatively small, but the company’s global liquefaction capacity at the end of 2016 has reached an impressive total of 30.9 million tons. Every little bit helps.
The oil superpower also operates more than 90 liquefied natural gas carriers, which account for about 20% of the global fleet. In short, investors who wish to have a booming LNG market will not have problems with the Royal Dutch Shell.
How to buy it on the top
As a leading LNG market segment, Total (NYSE:TOT) recently made eye contact by agreeing to acquire LNG’s upstart Engie. This move will make the French energy giant the world’s second-largest LNG company and is expected to rank in production by 2020. It also includes equity in the Cameron liquefied natural gas facility in the United States Gulf Coast. The total capacity of the first three trains reaches 150,000 tons per year. The site can support further expansion to 250,000 tons. Driftwood also has a portion of its shares in LNG. The project was initially developed, but may end up operating in 2023 and exporting more than 27 million tons.
Assuming the acquisition is completed, it will play an important role in Total’s long-term global LNG strategy. It should also treat shareholders well: It is expected that the operating cash flow of the integrated LNG business by 2020 will reach $3 billion. This is due to the fact that liquefaction capacity is spread all over the world, from the United States to the west coast of Africa to Australia to the Persian Gulf.
United States undisputed LNG champion
The early leader in the U.S. LNG sector was Cheniere Energy Corporation (NYSEMKT:LNG), which at the end of the decade had more than half of the country’s 9.5 billion cubic feet of export capacity per day. It can be said that in the foreseeable future, it should continue to be the king of the Gulf Coast.
As a leading global LNG exporter, Cheniere Energy’s entry into the Chinese market is only a matter of time. In early February 2018, it announced a long-term supply agreement with China National Petroleum Corporation. The transaction required the company’s current Sabine Pass plant to ship 1.2 million tons of carbon dioxide from China from 2023 to 2043, and then from its still-established Corpus Christi liquefaction plant. Shipments will begin this year.
The deal underscores the predictability of Cheniere Energy’s business model, which relies on the vast majority of export capabilities promised in long-term supply agreements at most fixed prices. This is needed in order to repay a huge debt burden (LNG terminal construction costs are very expensive), but it is unlikely to be a major issue for shareholders over a span of decades.
LNG is a real opportunity for China’s energy growth
Despite all the discussions surrounding China’s nuclear ambitions and how the state’s investment in nuclear energy has led to the long-awaited nuclear revival, the chances are unlikely to gradually reduce to the level of individual investors. Fortunately, as China seeks to replace energy consumption in the coal-fired industry and meet the growing demand for residential heating, China’s LNG imports will grow faster than its nuclear capacity. There are few investment opportunities in investing in atomic energy, and investors are eager to turn their attention to overcooled gas when they are eager to gain from China’s long-term energy growth.