While the media is filled with loud reporting of the newly available abundant supplies of natural gas within the borders of the United States, very little coverage is given to the efforts to restrict access to supply through restrictive regulations on hydraulic fracturing (fracking), or the political efforts just getting underway to restrict the export of natural gas into the world market where prices are as much as 3 to 4 times higher than they are domestically.
Only one approved export facility
While there are numerous companies that have applied for approvals to build or convert facilities to be able to handle liquefying natural gas for export, only one company, Cheniere Energy, Inc. (NYSEMKT:LNG) , actually has the approvals to do so in place. Strangely, the other applications that have been made to do so seem to be making very little progress towards approval.
While this would seem to guarantee a booming business for Cheniere Energy, Inc. (NYSEMKT:LNG), that is not necessarily true. There are moves afoot to hamper the ability of natural gas producers and exporters from being able to do so at a price that would make it competitive in the global market.
But, even though there is nothing to stop Cheniere Energy, Inc. (NYSEMKT:LNG) from exporting liquefied natural gas (LNG), there is also nothing that prevents the federal government from taxing the exported gas at a level that would remove the economic incentive to do so.
Given the lobbying pressure from certain manufacturing segments that utilize massive amounts of natural gas and the desire of government to create more tax revenue, it should come as no surprise to anyone when a massive tax on LNG exports is proposed and cloaked as “protecting American jobs”; but many will be surprised.
As with any misguided policy, there will be winners and losers; Cheniere Energy, Inc. (NYSEMKT:LNG) could well be a massive loser as their entire business is based around exporting LNG. Investors need to consider this risk seriously before investing here. If no government action is forthcoming, Cheniere Energy, Inc. (NYSEMKT:LNG) will become an enormously valuable business, tax and regulatory changes could crush its prospects as a viable business.
There are always going to be winners
If moves underway by some environmental groups are successful in creating a high enough level of fear within the voting populace, the government will be incentivized to altogether ban the practice within the boundaries of the U.S. or to create such a harsh regulatory environment that will achieve the same effective result. Given the thirst of the government for revenue, the imposition of a high tax rate upon the process or product would seem to be the most likely approach foreseeable. While that would be a huge negative for the consumers of natural gas; there are always going to be winners.
Regardless of the outcome in the battle over exporting LNG, our country still consumes huge amounts and that gas must be moved from the well to the source of use; it must also be stored while waiting to be used and large amounts will be consumed in the production of electricity.
One of the big winners in every step of this process is Dominion Resources, Inc. (NYSE:D) . Dominion Resources, Inc. (NYSE:D) is in the business of operating natural gas pipelines, generating electricity and natural gas storage. No matter the fate of fracking or the outcome of discussions regarding restricting or taxing the export of liquefied natural gas, we will still need to transport and store our supplies of natural gas and turn a significant part of that gas into electricity, and Dominion Resources, Inc. (NYSE:D) will be there to profit from it.
Investors considering the allocation of capital here should look closely as this is not an inexpensive stock based upon fundamentals, but the business is very well positioned to prosper and has a current dividend yield of 3.65%.
Cheaper than Dominion and free to go anywhere
It might be very difficult to find anyone who has followed energy policy and practice in this country for very long who would doubt that the United States is capable of throwing away the prospects to become a global energy powerhouse through the implementation of misguided policies and practices. Therefore, it is wise to look for businesses that can take advantage of natural gas exploration and production anywhere in the world. C&J Energy Services Inc (NYSE:CJES) is a good place to start looking for such an opportunity.