The flurry of application submissions is the industry’s attempt to take advantage of perhaps the quickest profit in the energy industry. How cheap is American gas? Take a look for yourself:
Source: Waterborne Energy. Note: $/MMBtu
Opportunities will remain if we exclude Japanese imports, but the competition will be much fiercer. Australia and Qatar, which sold 31.6 million metric tons of LNG to Japan in 2012, would need to look elsewhere if our scenario takes root. That could put a big damper on the number of domestic export terminals ultimately approved.
Manufacturing an alternative
BP (NYSE:BP) recently signed a 20-year contract with Freeport LNG for 4.4 million metric tons of LNG per year. However, the company is actively diversifying its portfolio away from LNG — and it’s not alone. Multinational energy companies such as TOTAL S.A. (ADR) (NYSE:TOT) and Royal Dutch Shell haven’t been shy about their intent to export American gas, but they also support restrictions to take advantage of cheap natural gas for their domestic chemical businesses. Using natural gas as a feedstock to manufacture value-added chemicals – as each of the above plan to do – is an even more profitable business than selling natural gas in liquid form.
Others, such as Clean Energy Fuels (NASDAQ:CLNE) , want to use cheap natural gas to replace diesel fuels in the trucking industry. The company maintains that compressed natural gas fuel can be up to $1.50 cheaper than diesel fuel and is building an impressive coast-to-coast distribution network to seize what it sees as a golden opportunity. The takeaway: LNG exports add to the natural gas industry, but don’t make or break it.
Foolish bottom line
Can Japan find a way to commercialize its vast methane hydrate deposits? Methane hydrates may sound like a pipe dream, but don’t forget that few predicted the shale gas boom just a decade ago. Perhaps Japan will bring the next disruptive energy revolution to the market. Optimism aside I think the technology warrants some attention (it’s not included in LNG growth models), but investors may not want to consider it as a high-level threat just yet.
It appears that restrictions to support domestic chemical industry growth and jobs are a bigger threat to American LNG exports than an experiment 1,300 meters under the sea. So what’s the best investment strategy in natural gas? Don’t rely too heavily on LNG export forecasts – diversify into investments that will create value from gas domestically as well.
The article Can Japan Freeze American LNG Exports? originally appeared on Fool.com and is written by Maxx Chatsko.
Fool contributor Maxx Chatsko has no position in any stocks mentioned. Check out his personal portfolio, his CAPS page, or follow him on Twitter @BlacknGoldFool to keep up with his writing on energy, bioprocessing, and emerging technologies.The Motley Fool recommends Total.
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