Playing U.S. LNG Supply

Later this month, we’re going to see United States natural gas make its official debut on the global market.

All I can say is that it’s about time.

For years, we’ve patiently kept our eyes on the fundamentals of the supply glut plaguing North America’s natural gas sector.

After all, shale gas production in the Marcellus is the reason our domestic gas output has increased for 11 years straight, almost single-handedly pushing total U.S. production to over 90 billion cubic feet per day!

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Now, even though low natural gas prices are finally beginning to take a toll on Marcellus gas production, and the supply/demand balance is as important as ever, we can’t help but keep in mind that it’s not the only catalyst to watch — especially as U.S. companies start shipping cargoes of liquefied natural gas across the ocean.

In fact, there are two to keep in your periphery right now… the only question is how much of a threat they’ll be to the virgin U.S. LNG trade.

The Iranian Gas Threat

Let’s start with Iran.

You already know about the massive amounts of investment Iran will need to make before it can ramp up exports of anything.

And even though the country was once a major oil supplier, years of sanctions and lack of business have left its refinery and transportation infrastructure in shambles.

In other words, it almost feels as if Iran will have to start from scratch.

You see, the country has only one LNG plant… sort of. It began construction in 2007, but work was halted on the project in 2012 before it could come online.

Now that the possibility of exporting gas is once more a reality, Iran will need extra investment just to finish the project — and that’s not counting the exorbitant amount of time and money it will take to actually upgrade the facility and bring it to capacity.

Simply put, there’s only a limited window of opportunity here for new entrants into the natural gas and LNG markets, and Iran may not make it in time.

Meanwhile, the U.S. already has several LNG export facilities being set up. The Sabine Pass in Louisiana is, as we speak, taking in natural gas supply and cooling it into LNG cargo, which will be sent out later this quarter.

A total of seven LNG export terminals have been approved by the Federal Energy Regulatory Commission (FERC) in the U.S., with another 22 on the proposal list.

Congress is even working to put a 45-day deadline on all newly proposed LNG projects to make sure all viable opportunities have the chance to catch the closing window on the market.

Of course, the real challenge to the United States global LNG exports will be stealing clients from arguably the world’s dominant natural gas producer.

Don’t Drink Putin’s Tea

Unfortunately, Russia doesn’t have the same infrastructure crisis that is threatening Iran.

More importantly, Russia’s proximity to Europe has helped it become the main gas supply to those countries.

In fact, nearly 90% of Russia’s 7.1 trillion cubic feet of natural gas exports in 2014 went to Europe. And because it can export natural gas through pipelines without having to cool it into LNG first, you can see the clear-cut advantage it has over U.S. companies.

Putin has never played fair, however, and has been known to jack up prices on a whim.

Increasing prices is a likelihood, too, given the fact that Russia is undoubtedly feeling the burn of low oil prices (assuming its unlikely alliance with Saudi Arabia is short-lived). Russia can’t really afford to be giving its natural gas customers discounts.

Now consider that the political issues surrounding Russia, especially its ongoing annexation of Ukraine, make it a less-than-ideal choice for a business partner. Throw in Russia’s penchant to turn off the gas taps if you don’t succumb to its price hikes, and it’s a recipe for disaster.

Personally, I think it’s only a matter of time before Europe is pushed over the edge by Putin’s shenanigans… and the availability of U.S. LNG certainly alleviates its dependence on Russian gas.

Well, Europe’s mounting frustration with Putin is coinciding nicely with Cheniere’s first shipment, which is slated to go to France later this month.

In fact, Wood Mackenzie analysts have said that as much as 55% of the United States’ LNG production will go to Europe by 2020, where LNG imports have increased 14% since 2011.

Yet that’s still only part of the potential for LNG business in the U.S…

U.S. Gas Goes Global

While most of the 22 LNG terminal applications are located in or around the Gulf of Mexico, there are a couple projects eying up the West Coast.

Two terminals, the first and second on the FERC’s current list, are located in Oregon. Another is located in Alaska, and another three could be placed along the western coast of Canada going forward.

Short of additional export capacity, these terminals could possibly — if not entirely plausibly — export to Japan someday.

Meanwhile, the U.S. has one more infrastructure advantage: LNG import terminals.

Where countries like Iran have to build entirely new facilities, the U.S. may make the choice to transition some of these import terminals into export terminals, which will save desperately needed money and time.

The country has the capacity to become a net exporter of LNG, and possibly the world’s third-largest exporter behind Australia and Qatar, as soon as 2020.

That may just be the window of opportunity, and it’s not very big. You’ll want to get in on this action now before all the gains are gone.

Until next time,

Keith Kohl

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A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.

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