Investing in U.S. Natural Gas Exports

Let me ask you a question…

If the United States decides to restrict exports of natural gas, is that any different from the Chinese restricting exports on rare earth elements?

It’s an interesting question, and one that has seemed to have caught the attention of the Council on Foreign Relations, which doesn’t want any headaches with the World Trade Organization (WTO).

Of course, I could personally care less about the WTO’s take on what we do with our natural gas bounty…

And I certainly won’t sit here and pretend to assume the WTO should have any say whatsoever about our decisions regarding resources that lie beneath our feet. The decision on natural gas exports is not one that should be influenced by an unelected group of international bureaucrats, but instead by our own economic interests.

And it is for this reason I suspect the U.S. will ultimately move forward on a policy that will facilitate the large-scale exportation of natural gas.

Money on the Table

At the present time, the DOE is reviewing 19 applications to build LNG export terminals. The companies that have applied for export licenses are looking to move more than 200 million metric tons of LNG every year.

Certainly this is a concern for companies that rely on cheap natural gas. Chemical companies especially are fighting exports. But when you can get $12 per million BTUs in Europe and $18 in a few Asian markets… that’s just an extraordinary amount of money that’s not going to be left on the table.

I would also argue that any increase in domestic prices due to exports would be short-lived, as those producers that have recently tabled drilling (due to excessively low pricing), will simply get back out into the field and start drilling again.

And that’s just more jobs in an industry that’s actually been one of the few bright spots in our energy economy.

Jobs

Aside from the massive increase in jobs in the solar sector, now employing more than 100,000 people in the county — mostly in installation — job growth in the oil and gas sector continues to impress, particularly for small businesses.

According to Raymond Keating, chief economist at the Small Business and Entrepreneurship Council, the oil and gas space has bolstered small business growth. From 2005 to 2010:

The number of oil and gas extraction employer firms grew by 3.1%, including growth of 2.5% among firms with less than 20 workers and 3% among firms with less than 500 workers.
The number of drilling oil and gas wells employer firms grew by 7.2%, including 4.7% among firms with less than 20 workers and 7.3% among firms with less than 500.
The number of oil and gas operations employer firms grew by 24.5%, including 24.5% among firms with less than 20 workers and 24.6% among firms with less than 500.
The number of oil and gas pipeline and related structures construction employer firms grew by 5.1%, including growth of 3.5% among firms with less than 500 workers.
The number of oil and gas field machinery and equipment manufacturing employer firms grew by 61.0%, including growth of 59.0% among firms with less than 20 workers and 62.7% among firms with less than 500 workers.

You’ll be hard-pressed to find many folks in Washington looking to deter job growth…

Even Obama looks like he’s signing on for LNG exports.

Central America Energy Blues

Last week President Obama announced that he felt he needed to make an executive decision about whether or not we export LNG. He said helping Central America would factor in to his decision. The president recently returned from a trip to Mexico and Costa Rica, where Costa Rican President Laura Chinchilla expressed concern over energy shortages in Central America.

Of course, while we claim to want to “help out” our neighbors to the south, the bottom line is this is an economic decision, not an altruistic one. If altruism had anything to do with decision-making in Washington, we wouldn’t only “help out” or “free” the oppressed in oil-producing nations…

Nevertheless, Obama isn’t stupid. And he knows the economic case for exports is a solid one — as do most folks in Washington looking to keep the motor running on America’s shale revolution.

Sure, the debate will continue. But mark my words: By 2020, the United States will be running full speed on LNG exports. Jobs will be created, economic growth will be bolstered, and investors that are properly positioned in the LNG space today will be well-rewarded.

Right now, it looks like Cheniere Energy (NYSE: LNG), Sempra Energy (NYSE: SRE), and Dominion Resources (NYSE: D) are three solid plays on LNG export approvals, though there will definitely be more…

To a new way of life and a new generation of wealth…

Jeff Siegel Signature