How to Invest in the Global Race to Export LNG

As Money Morning Global Energy Strategist Dr. Kent Moors told us yesterday, the United States on Aug. 7 finally approved its third application to export LNG (liquefied natural gas).

The delays in the U.S. LNG export approval process have been frustrating an industry that's ready to capitalize on the price differences between North American and Asian natural gas prices. Asia LNG sells for about $16 per million BTU versus less than $4 per million BTU in the United States.

While the U.S. Department of Energy streamlines this lengthy approval process, our neighbor to the north is also using its abundance of shale gas to race into LNG exports.

You see, Canada has a lot of natural gas.

According to the U.S. Energy Information Administration (EIA), Canada has recoverable shale gas resources of 573 trillion cubic feet. That is not much less than the EIA's estimate for the U.S. of 665 trillion cubic feet.

Overall, Canada may have 1,300 trillion cubic feet of shale gas, according to The Wall Street Journal.

These resources, located mainly in the Western Canadian Sedimentary Basin, have yet to be exploited to the extent that they have in the United States. But oil and gas companies are excited about the prospects north of the border. The research and consulting firm, Eurasia Group, forecast that $60 billion will be spent by energy companies building LNG plants from scratch in Canada.

Canada is expected to ship at least 13 billion cubic feet of LNG to Asia within 10 years. That is about how much natural gas the country currently produces.

The major question is which country will win the race to send cheap North American LNG exports to the $150 billion Asian market - where gas prices right now are about four times higher.

The good news for investors: If you know which companies are making moves now to lead the developing LNG export industry, then you'll win no matter which country is in the lead...

Canada Forges Ahead with LNG Exports

So far, the three U.S. LNG export licenses approved have been from Cheniere Energy (NYSE: LNG), privately-owned Freeport LNG Expansion LP, and the recent addition of the joint venture of the U.K.'s BG Group PLC and the Southern Union division of Energy Transfer Partners LP (NYSE: ETP).

Companies that get approved for LNG exporting this year will deliver for investors. Cheniere - recommended by Dr. Kent Moors two months before its export approval came through - soared 300% in the two years after it was approved.

Investors aren't limited to U.S. companies when they pick the big LNG winners, now that Canada is racing for a piece of the market.

And Canada does have two advantages in the race to export LNG...

First, the energy industry-friendly Canadian government is in favor of developing the country's gas resources and exporting at least some of it to the lucrative Asian LNG market. The government believes there is so much natural gas in Canada that there is no need to restrict exports.

U.S. critics are concerned that exporting LNG will raise domestic natgas prices and hurt other industries taking advantage of the cheap fuel.

Second, Canada is closer to Asia than the United States. It takes LNG shipments 8-10 days to reach East Asia, which is less than half the time it takes for shipments from the U.S. Gulf Coast.   

These reasons are why Michelle Foss, chief energy economist at the Center for Energy Economics at the University of Texas' Bureau of Economic Geology, told Bloomberg, "The smart money is going to Canada to export LNG."

Martin Houston, COO for BG Group, told The Journalthat lower shipping costs will offset the high costs of building pipeline and liquefication equipment in Canada.

And Canada may land the first punch in the LNG export race with the United States.

It is expected to make the first LNG shipment using Canadian natural gas to Asia in the middle of 2015. The shipment will come from the Douglas Channel Energy Partnership, which is a joint venture between the Haisla Nation aboriginal community and LNG Partners, a Houston-based firm focusing on buyouts and led by Thomas and Glenn Tatham.

This is a few months before the first planned U.S. LNG facility - Cheniere's Sabine Pass facility - is expected to start operations in late 2015 or early 2016.

The Canadian government has already approved three LNG export applications with more approvals expected. Four more applications have been submitted, including one for a major plant by Exxon Mobil Corp. (NYSE: XOM).

Among the applicants already approved are Royal Dutch Shell (NYSE ADR: RDS.A; RDS.B) and Chevron Corp. (NYSE: CVX). The total LNG export capacity for the three projects approved is 4.66 trillion cubic feet of natural gas a day. That is more than twice the capacity - 2.2 billion cubic feet - of the two projects approved by the Obama administration to date. 

In fact, Chevron plans to put all of its North American LNG dollars north of the border. It cites the closer proximity to Asia and the much more favorable regulatory conditions.

Chevron believes the dynamics in the LNG market are favorable going forward. The company's CEO, John Watson, told analysts earlier this year global demand for LNG (led by Asia) will begin to outpace supplies by 4.87 trillion cubic feet a year by 2025.

It bought a 50% interest last year in the construction-ready Kitimat LNG project of Apache Corp. (NYSE: APA). This facility when completed is expected to have the ability to export 2.8 billion cubic feet of gas per day.

This project should be among the first out the blocks among the British Columbia LNG projects.

It is not just North American energy companies vying to develop Canada's vast natural gas reserves.

Asian Energy Giants Involved

Asian energy companies have also joined in, including Malaysia's Petronas and China's CNOOC Limited (NYSE ADR: CEO).

Petronas says it is willing to spend $20 billion to develop the Pacific Northwest LNG project near Prince Rupert in British Columbia, while CNOOC has already made a move.

Not only has it expressed interest in two sites in British Columbia for possible LNG terminals, but last year it spent $15.1 billion buying Nexen.

This Canadian company holds roughly 300,000 acres of rich gas lands in British Columbia. These include the Horn River, Cordova and Laird Basins. The Horn River and Cordova basins contain between 4 trillion and 15 trillion cubic feet of recoverable resources, while the Laird basin is estimated to have between 5 trillion and 23 trillion cubic feet of prospective resources.

To stay up-to-date on all the developments in investing in the LNG export boom, sign up for Dr. Kent Moors' Oil & Energy Investor Newsletter.

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