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LNG Trade is About to Take Off

by | published January 27th, 2012

Over the past two years, I have discussed at length the benefits of the coming U.S. trade in (LNG).

Exporting LNG will offset the glut forming from excessive shale gas extractions, bringing balance to the U.S. market. It will also cause a small group of companies already involved in the development of this trade to become a main focus of investors.

This is a complete game-changer.

Remember, the LNG process cools the gas to a liquid, allowing it to be moved over long distances by tanker instead of just via pipeline. It is then regasified on the receiving end and injected into existing transit pipeline systems for delivery to consumers.

Already, the construction of LNG receiving terminals in Asia and Europe is accelerating. These are the two markets most in need of large increases in imports. The continents need to both meet rising demand and restrain the prices commanded by long-term pipeline-delivered gas.

Luckily, LNG can do both.

Traditionally, natural gas has only been able to develop regional “spot” markets. These are locations where the availability of volume provides an opportunity for traders to execute a price for a quick sale (usually within 72 hours).

This is because the availability of product depends upon the development of import pipelines, which are multi-year, capital-intensive projects.

LNG, on the other hand, can be delivered by sea to a terminal, so it can provide an immediate increase in the available local supply. To the extent that the can be sustained, new spot markets are immediately formed around the hubs that develop at the intersection of terminal and delivery pipelines.

And now Qatar – one of the world's largest producers of conventional gas (that is, from freestanding gas fields) – has banked on LNG being the wave of the future.

Qatar has become the first country to commit all of its production to the LNG trade.

And that is a huge vote of confidence for this market.

Considering the number of new tankers involved, this single decision jolted the global shipbuilding industry into one of the most significant increases in business ever recorded.

The Qatari decision was just the first step…

A Global Boost for LNG Transport

New export terminals are being built by other major gas producers – Russia, North Africa, and Canada. Our neighbors to the north have clearly signaled where the U.S. will be moving next.

A project is moving forward at Kitimat, British Columbia, on the North Pacific coast. It is scheduled for completion in 2014.

Developers originally intended this project to be an LNG receiving facility. But by the time the construction began, the intended flow of gas had changed by 180 degrees. This facility will be 100% committed to exporting LNG.

And the reason is the same one that is prompting so much U.S. discussion…

Just andenergyinvestor.com/2010/11/a-solution-for-north-americas-natural-gas-surplus/”>like the United States, Canada has huge shale gas basins in northern British Columbia and Alberta (the Horn River and Montney formations lead production).

The resulting largess was depressing prices.

So they decided to export more to Asia as LNG.

Now, currently, the U.S. has no significant export facilities.

But Dominion Resources Inc. (NYSE: D) has applied to retrofit half of its Cove Point, Md. receiving terminal (the largest on the East Coast).

Meanwhile, Cheniere Energy Inc. (AMEX: LNG) is hard at work developing the Sabine Pass terminal complex on the Gulf of Mexico, after obtaining the first blanket export approval from the U.S. Department of Energy and landing some huge 20-year contracts from major international LNG importers.

Additional moves are afoot, like a high-profile decision by BP (NYSE: BP), ConocoPhillips (NYSE: COP), and Exxon Mobil (NYSE: XOM) to develop a joint LNG export project.

And just this week, the Brookings Institute's Energy Security Initiative announced that the lower 48 states will be producing more gas than the U.S. needs for the foreseeable future. That means the door is now wide open for the U.S. to begin exporting in significant amounts.

But there are distribution problems that could affect the overall trade amounts and the market impact from American exports in the near term.

A Man, A Plan, A Canal, Panama

With Cove Point and Sabine Pass, there will be direct access to Europe from points on the U.S. East Coast.

However, there are no terminals on the West Coast, making movement of LNG to Asia far too expensive.

This is because LNG tankers are too wide to make it through the Panama Canal.

That is… they are for the next two years.

The Panama Canal is currently being dredged and widened – a process scheduled for completion in 2014, just as the bulk of U.S. LNG exports begin in earnest. The new configuration will accommodate the tankers and cut time (and transport costs) significantly.

With both Europe and Asia open for exports, and new terminals to receive product being built at a record pace on both continents, there will be a welcome new way to reduce pressure from our shale gas glut.

And an American-based industry, along with the technological advances upon which it is based, will find a ready and expanding global market.

That’s especially good news for us oil and energy investors.

Sincerely,

Kent

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  1. January 27th, 2012 at 15:57 | #1

    Hi Kent; another great article. Who and What is being done about facilities and Distribution to users of LNG on the this Continent ?

    As you know, that was the problem when they tried CNG, and it was the a significant reason for it’s failure to become “Mainstream”

    Access and Convenience will determine the success/failure of anything!

    Sincerely, Bob Bartlett

  2. Henry Markant
    January 27th, 2012 at 16:16 | #2

    I have not seen anywhere how LNG is handled. How difficult is it
    to keep in liquid form and how dangerous are the transfers from
    pipelines to tanker ships? If it has to remain cold in order to
    remain a liquid, this would require some fairly gigantic universal
    refrigeration units – which might be another promising investment?

  3. enthusceptic
    January 27th, 2012 at 16:31 | #3

    Europe gets most of its gas from Russia,North Africa and the North Sea, and soon also from Poland, but maybe they need more from North America?
    There has been talk of a pipeline from Russia to China. Any news on this?
    The developing world needs gas! I live in a developing country, and here gasoline and diesel is extremely expensive…

  4. William Kirkey
    January 27th, 2012 at 17:01 | #4

    Dear Kent,

    I quite enjoy your writing style and comments without the ….shit. You tell it like it is and keeping it short is most appreciated by myself, as I subscribe to a large volume of papers who all send a couple of e-mails a day. It becomes quite daunting to read them all and then try and keep on top of your trading portfolio, as well as making sure how all your approaching options are faring.

    Thank You again,

    Yours truly,

    William Kirkey

    (way up north in Canada)

    I am quite a happy camper to see that a Middle East country has had the brilliance to change their perspective and go with LNG all the way. This will only serve as an impetus for the rest of the world to get on baord and ultimately raise the pitiful low price that LNG currently commands.
    While on that subject, I would like to pick your brains for just a second, Kent. With the world awekening to this wholesale change in attitude toward what to do with the current gas glut, who and how do you see the current price of LNG getting set up into a profitable position. Who comes along and sets the price that will be acceptable to the country that liquifies and then exports the Lng and the country that’s contracting to pay for it.

    I do not wish to appear uneducated, but I would like for someone in the know(You) to inform us the investors what the current value is as N/G sits in holding tanks or in pipelines; then the added costs of processing, cleaning and liquifying the product. It all costs money, so how does one figure out what it costs for a yearly contract of 20 years in duration, for a sea-going tanker of LNG tto Europe or Asia.

  5. Robert J. Samples
    January 27th, 2012 at 17:13 | #5

    When will shipping LNG to Asia affect US markets, will it be by
    this summer, next year, or later? RJS

  6. Ted Cleary
    January 27th, 2012 at 17:18 | #6

    Kent,

    Great article. Amazing turn of events that America could be awash with gas and NO LNG export capacity, except the plant in Kenai, Alaska, that is decommissioned due to the depletion of the gas field that supplied it. Have people been asleep in all Board rooms and no access to World news?

    I live in Australia and between Australia (7) and Papaua New Guinea (2) (PNG) we are looking at about 9 LNG Projects mainly underway (post FID). On Jan 13, 2012 Inpex from Japan and Total of France signed off (FID) on the most recent addition to our LNG aresenal, a 34 Billion LNG project in Darwin, Australia,with gas coming by 500 mile pipeline from the North West shelf gas fields offshore Western Australia. We have four separate LNG projects going into a sleepy country town in Queensland called Gladstone. Exxon is building an 8MPTA project in PNG and InterOil is working on FID for a 3MPTA on shore PNG LNG plant AND a 2MPTA Floating LNG plant (could beat Shell’s 1,500 foot long Prelude FLNG into production). Chevron is the biggest player here with Gorgon and another off Western Australia. It is amazing that North America has missed the boat so spectaularly and I hope when it comes on it does not flood the LNG market and sink the boat. But there has to be a buck on early North American LNG players as prices in Asia for long term LNG are currently around $13 versus $2.76 per MCF at Henry Hub. Is Cheniere the play or the Canadian outfit (Progress?) – or both?

  7. J
    January 27th, 2012 at 18:10 | #7

    Hey Kent , thank you for your articles!Will or should I hold on to the oilmarch 30 options?

  8. David White
    January 27th, 2012 at 18:55 | #8

    kent, I thought the Sempra Energy LNG terminal in Ensenada, Baja California,was being converted from an inport to an export facility, so this would be a terminal that could be used for shipping LNG to Asia.

  9. January 28th, 2012 at 06:03 | #9

    This is a good report to know where Are all the new trackable energy sources akk over the world
    thank you
    Tony

  10. enthusceptic
    January 28th, 2012 at 16:04 | #10

    I notice that some are complaining about a lack of investment advice. Above there are companies mentioned that are involved in oil and gas, and some of them may be interesting.

  11. Louis Sack
    January 28th, 2012 at 17:19 | #11

    I hold shares in the Canadian Oil Sands that don’t seem to be moving
    and I am losing on them They are Enerplus(erf) Bonavista (bnp) and Penwest Petroleum(pwt)/ What do do you think I shoud do?. I appreciate your advice/

  12. enthusceptic
    January 29th, 2012 at 11:41 | #12

    Really, Europe importing LNG, not exporting? Don’t worry, the world is much bigger than Europe and North America, plenty of markets! Again, please somone give us a global overview?!

  13. Rei Roth
    January 30th, 2012 at 07:15 | #13

    I remeber about 30 years ago there were several LNG tankers anchored at the Naval Ship yard in New Port RI. The economies were not right at that time and they could not give away the tonnage much less sell it. I would like to see the economics based on today’s projections! The ships are dedicated to only one cargo, expensive to build and operate. The tankers looked like the Hindenburgh placed on top of a tug and were equally hazardous or explosive and feared in populated areas. I believe the gas is heavier than air and therefore very difficult to handle on ship, rail or other transport. But if it was marginally feasible then it must be a winner today! Rei

  14. LNG Man
    January 30th, 2012 at 15:05 | #14

    To Rei Roth and Bartlet. The sale price of LNG elsewhere in the world is 3X-4X the price here so it is more than “marginally feasable” to ship LNG to the rest of the world. US derived LNG will remain dirt cheap for decades due to our massive supply which is also increasing daily. For local use, you need government initiative to push for ng vehicles and trucks. CLNE and WPRT are connected to this trend. For exporting, LNG will be the big winner and will probably become a $50 stock in a few years.

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