Taiwan is hungry.
The nation of 23 million people is a bastion for economic growth and a part of the Asian Pacific region that has been going great guns recently.
But because of its growth, the country has been desperate for energy, which simply can’t be found in abundance on the small island.
Taiwan’s answer has been to import coal and oil, which make up about 85% of its grid, as well as some liquefied natural gas (LNG). The nation also domestically produces nuclear electricity.
Of course, coal is king in Taiwan, with over 72 million short tons imported every year.
But that’s all about to change.
The EIA reports that Taiwan’s electricity generation grew by 32% between 2000 and 2010. But in 2010, the island nation enacted a new pledge to cut pollution, which ballooned alongside the increase in fossil fuel demand.
The key components of its new grid will be renewable energy, nuclear, and LNG.
Taiwan Abandons Coal
Taiwan’s attempt to move away from coal and oil and toward cleaner energy reminds us of the struggle happening now in the U.S.
In Oregon last month, a battle between coal producers and the government was just one example of how the Pacific Coast has become an anti-coal zone over the last decade.
Regulators in the state denied approval to Australia’s Ambre Energy for a plan to export coal via barge to Asia, where countries like Taiwan and China are willing to buy the resource.
The new EPA regulations have coal producers in the Powder River Basin, West Virginia, Kentucky, and elsewhere scrambling to find a new avenue for coal profits… and the answer has been exports.
But as the Oregon battle shows, this won’t be easy. California, Oregon, and Washington State effectively froze all coal-fired power, and now they’re doing the same with exports on the Pacific Coast.
A feasible compromise may seem out of reach for U.S. fossil fuel producers, environmentalists, and politicians — but there are a few solutions on the horizon.
One of those solutions is natural gas. The U.S. has a glut of it, which has depressed prices below $4, easily making it the cheapest in the world.
New Drug, New Dealer
In response to the low prices, the United States government has slowly approved export projects for liquefied natural gas.
And on Wednesday of last week, the Department of Energy gave its blessing to the Cameron LNG project in Louisiana and Florida.
The endeavor by Sempra Energy (NYSE: SRE) will export 1.7 billion cubic feet of natural gas per day to Taiwan, Japan, and other Asian countries.
The Hackberry, Louisiana facility will ultimately cost $10 billion but could offer two to three decades of solid returns as the Pacific Rim nations crave more environmentally friendly growth.
Previously, Taiwan had received much of its LNG from Malaysia, Qatar, and Indonesia, but those countries simply cannot compete with U.S. prices.
And now that the U.S. government has fully approved LNG export projects worth 4.5 billion cubic feet per day, these nations will struggle in Asian and European markets that crave cheap fuel.
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Play the LNG Long Game
The biggest caveat with these new LNG projects in the U.S. is time…
The Cameron Project won’t be completed until 2018, which means returns for investors will be low until then.
However, the first LNG export project to gain approval was Cheniere’s Sabine Pass facility in Louisiana.
This project is slated for completion by the end of 2015 and has a high profit potential for investors looking for safe, reliable returns.
Cheniere Energy Partners L.P. (NYSE: CQP) has performed well over the last two years, and once the Sabine Pass terminal hits full steam, it will see profits abound from exported gas.
The company also hands investors a 5.18% annual yield, which will almost certainly rise once investors catch on to the potential of the Sabine Pass facility. Defensive investors could start building their positions now with a safe but aggressive policy of dollar-cost averaging.
Setting aside the money today will pay off huge once the dividend and share price hit new heights in 2015 and beyond.
Good Investing,
Alex Martinelli
With an eye squarely focused on the long-term, Alex Martinelli takes the art of income investing to a higher level within the energy sector. His research has helped hundreds of thousands of individual investors identify well established companies that have a long history of paying out dividends to their shareholders. For more info on Alex, check out his editor’s page.
