Master of short-selling, Jim Chanos, has revealed his latest short bet: Cheniere Energy, Inc. (NYSEMKT:LNG), a developer of liquefied natural gas (LNG) plants. Shares fell by as much as 5% during the first two hours of trading today following the news. In an interview with CNBC, the manager of Kynikos stated his bearish views regarding the LNG business, branding Cheniere Energy, Inc. (NYSEMKT:LNG) a “looming disaster“. It seems this play could turn into a clash of investing titans, as legendary activist Carl Icahn holds a sizable long position in the company.
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According to Chanos, the stalling demand for liquefied natural gas coupled with the massive costs of building and developing LNG plants, make investments in Cheniere Energy, Inc. (NYSEMKT:LNG) foolhardy. Accumulated excess supply coupled with the potential doubling of global production capacity is going to spell trouble for the gas industry, according to Chanos, who is citing a June report by the International Energy Agency, which predicts a slowdown in global demand growth for natural gas. The fact that its business is tied to Asia to some degree, will put even more pressure on Cheniere Energy, Inc. (NYSEMKT:LNG), as demand will suffer from the economic slowdown in Asia and especially in China.
“With the stock at 30 times 2020 earnings, with the upside coming from a glutted market, we think the risk-reward in this, given where other LNG plays are in Australia and elsewhere, is just completely out-of-whack,” Chanos stated. Furthermore, the approval of the Iran nuclear deal and the subsequent removal of economic sanctions could see U.S. exporters face increased competition in the global natural gas market, according to Citigroup analysts.