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Anyone investing in natural gas companies is eagerly awaiting news that the liquefied natural gas (LNG) export boom is officially underway…
While we still have to wait, the good news is that last week Department of Energy Secretary Ernest Moniz told Reuters his department will go through the applications as quickly as possible. He added that he expects the Energy Department to conduct a “fair amount of action” regarding the applications this year.
This falls in step with the Obama Administration’s energy initiatives, which include a push for the development of “a global market for natural gas.”
This global natgas market will replace the current regional gas markets only if there are large exports of cheap natural gas from the U.S.
Such exports are one main reason Money Morning Global Energy Strategist Dr. Kent Moors is bullish on natural gas prices in the years ahead.
He’s also bullish about the prospects for investors in certain natural gas companies – especially ones positioning to profit from Asia’s need for LNG…
The Sea Route to Asia Paved With Riches
As pointed out by Money Morning Resource Specialist Peter Krauth, selling LNG to Asian countries such as Japan, South Korea and increasingly China will be a lucrative business in the years ahead.
Japan and South Korea are the biggest importers of LNG. Japan, in the year ending in March, imported a record 87 million tons of LNG after shutting down 48 of the country’s 50 nuclear reactors.
That is more than one-third of the world’s LNG exports of 240 million tons in 2011.
South Korea this year also is facing some nuclear plant shutdowns. South Korean imports were up 32.1% from a year ago in May to 2.9 million tons of LNG. Korea Gas, the world’s largest corporate purchaser of LNG, said it would raise inventory levels to 70% of capacity from 60%, which translates to 396,000 tons of LNG.
The major profit opportunity for U.S. natural gas companies lies in the huge price differential between natural gas in the U.S., at around $4 per million cubic feet, and LNG in Asia that is selling for about $14-$14.50 per million cubic feet.
That’s why the United States has the opportunity to become the dominant player in the LNG export business. Remember that currently about 240 million tons of LNG are exported around the globe annually.
The U.S. Department of Energy forecasts it will approve projects that can export between 45 and 90 million tons of LNG annually (out of 200 million tons worth of projects on the board currently).
If that comes to pass, companies winning the government greenlight should be able to sell LNG in Asia at a very profitable price.
But again, there’s that question of how many companies will get the nod from the U.S. government for their LNG projects, and how soon…
Government Approvals or Lawsuits to Come
The industry, unhappy with the sluggish pace of approvals, is speaking up to try and hurry the process. Some oil and natural gas companies are considering filing lawsuits against the Energy Department for not only the slow pace, but also the order in which applicants are approved.
The Energy Department has a queue set up for approvals. It’s only been set up since December, and placement in the queue is based on two dates.
The first date is when an application was filed with the Department and the second criteria is when the filing occurred for a license from the U.S. Federal Energy Regulatory Commission (FERC). A FERC license is required to begin construction of any gas export project and costs $100 million.
The use of a FERC license as criteria for consideration caught some major oil and natural gas companies off guard.
One prime example is Exxon Mobil Corp. (NYSE: XOM), whose proposed $10 billion Golden Pass LNG project is now nearly at the end of the line.
ExxonMobil CEO Rex Tillerson told Reuters, “I don’t want to start this process if you tell me it’s going to take five years for you to get around to my application.”
Five years is how long it will be if the Energy Department continues on its current pace.
That is the danger here to the potential U.S. LNG boom. . .that many companies may just throw up their hands in disgust at the delays and abandon their LNG export projects.
That development would no doubt please global competitors building LNG projects in Australia, Africa and the Middle East.
Let’s hope Secretary Moniz steps up the pace of approvals for LNG projects and soon. Or a tremendous opportunity may be missed.
Not all natural gas companies will be able to make money from LNG, but we’ve picked out one that will follow Cheniere’s profitable lead: Time to Pick the Next Winner in LNG Export Race
- Money Morning:
A Huge LNG Energy Boom Has Begun
US Energy Department Pledges Action in Handling Gas Export Applications
Companies May Turn to Courts on US Natural Gas Export Push
South Korea Nuclear Closures to Heat Up Asian LNG Demand
- Financial Times:
LNG: Shipments to Asia Remain Lucrative Line
- Christian Science Monitor:
How-Obama’s Climate Change Plan Promotes Natural Gas
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