The Magnolia development remains one of the most competitive Liquefied Natural Gas Ltd (AX:LNG) development projects (greenfield or brownfield) globally. Industry is starting to recognise that the current LNG oversupply will move towards undersupply within five years and there are few projects on track to fill the resulting gap. This should put Magnolia increasingly in the spotlight for buyers looking to fulfil demand in 2023 onwards. LNGL management has indicated it is in discussions with many companies across a diverse set of geographies and interests. We have adjusted our valuation to account for a delayed expectation of project FID, reducing it slightly to $A1.25/share (US$3.8/ADR).
Market sentiment has improved
LNGL has suffered over the recent few years as a glut of spot LNG supply (and low spot crude prices) have cast shade on LNG markets. However, with spot prices (oil and LNG) improving and a consensus building that the oversupply will end in the early 2020s, we see much to be optimistic about. The Magnolia project is shovel ready (well ahead of many of its US peers) and continues to offer buyers a fast and cheaper alternative to other projects. The management continues to stress its marketing efforts and is discussing the project with many buyers including major oil companies and traders.
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