There is far more to investing in natural gas and liquefied natural gas (LNG) than first meets the eye. There are at least these three important details to understand about the future of LNG before further investing.
As has been widely reported, the Department of Energy (DOE) gave conditional authorization for LNG exports to a second facility in the U.S. The Freeport terminal project will export up to 1.4 billion cubic feet a day (1.4bcf/day) of LNG. The approval allows for exports to countries outside of the free-trade agreement, including the high-consuming Japan. The Freeport terminal is a partnership between ConocoPhillips (NYSE:COP) and several private investors. This approval has given hope to many that more authorizations are on the way.
Approval Not Guaranteed
However, it must be noted that a new DOE secretary was sworn in after the May 17, 2013 approval was granted, and he intends to change things. The new secretary, Ernest Moniz, said he will delay the final decisions on the 20 waiting applications for other export facilities until he can review impact studies on natural gas supplies and prices. Moniz said he hopes to conduct his reviews as quickly as possible.
Freeport LNG has signed preliminary 20-year contracts to sell much of its output to two Japanese utilities – Chubu Electric Power, and Osaka Gas – and to BP Energy. The project, which is expected to begin exporting in 2017, still needs approval from the Federal Energy Regulatory Commission.
The Freeport approval was the first approval granted by the DOE in two years. The last approval was for the Sabine Pass facility owned by the Cheniere Energy, Inc. (NYSEMKT:LNG) Cheniere Energy Partners LP (NYSEMKT:CQP) subsidiary Cheniere Energy Partners LP (NYSEMKT:CQP) two years ago. The Sabine Pass facility is expected to be operational by 2016. The processing plant will export 500 million cubic feet of gas a day (16 million tons of LNG per year). Cheniere Energy Partners LP (NYSEMKT:CQP) expects to build five more identical systems by 2019. The $12 billion investment could export about 4% of America’s current natural gas output. After Cheniere Energy Partners LP (NYSEMKT:CQP) won approval for the Sabine Pass facility, the Obama Administration did an about-face on its own policy, resulting in a long delay in approving other applications for Cheniere Energy, Inc. (NYSEMKT:LNG) export facilities. Meanwhile, companies like Dominion Resources, Inc. (NYSE:D), which is now second on the waiting list, await approval.
Like Cheniere , Dominion Resources, Inc. (NYSE:D) wants to transform an existing import facility into an export facility. Dominion Resources, Inc. (NYSE:D) is one of the nation’s largest producers and transporters of energy and operates one of the largest U.S. natural-gas storage systems with 947 billion cubic feet of storage capacity.
Dominion Resources, submitted a 12,000-page application to federal regulators to build a $3.4 billion plant in southern Maryland to export Cheniere Energy, Inc. (NYSEMKT:LNG). The company has deals with energy companies in Japan and India that would purchase the gas.
LNG Exports Are a Global Issue
The second important thing to know is that Cheniere Energy, Inc. (NYSEMKT:LNG) exports will affect more than just the financial earnings of American companies and your retirement. Exports will help other countries get the access to needed resources. Don’t be short-sighted with your investments and think of Cheniere Energy, Inc. (NYSEMKT:LNG) in terms of U.S. supply and demand. Energy needs are growing around the world, including countries that cannot produce their own clean energy sources. The Ambassador from India, Nirupama Rao, wrote the following in an op-ed for the Wall Street Journal:
“India is now the world’s fifth-largest energy consumer. It imports 75% of its energy (especially oil-and- petroleum products) today and expects to import 90% over the next decade… A boost in Cheniere Energy, Inc. (NYSEMKT:LNG) exports would have many positive effects on both the U.S. and Indian economies.