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U.S. Shale Gas Goes Global

Let the LNG Export Reality Sink in...

Written by Keith Kohl
Posted October 30, 2015

It has begun.

Last Monday, Cheniere Energy (NYSE MKT: LNG) announced that it would be exporting its first shipment of liquefied natural gas (LNG) from its Louisiana Sabine Pass terminal.

The supply of natural gas to be cooled into LNG will be coming in through seven pipelines starting later this year.

And you know what will happen next: the first LNG exports in the history of the United States.

It's an historic moment, and it couldn't have come at a better time — natural gas prices are looking good to recover, and several global markets are ripe for new supply.

But let's take a look-see at the finer details of this new day.

Gas on the Rise

A few weeks ago, my colleague Christian DeHaemer wrote about how slowing growth in China has been bad for commodity markets in generals.

More importantly, however, he noted that natural gas was not one of them.

A number of factors were causing this:

  1. Winter is coming, which always brings natural gas prices back up.

  2. U.S. rig counts continue to fall and are starting to take a toll on supply growth.

  3. Since we're not connected directly to the global markets — yet — the slump in the Chinese economy hasn't helped or hurt our natural gas prices.

To start, our oil and gas production has been under attack by OPEC's oil price war. Had Saudi Arabia not decided to wage its war on North America's energy boom, the U.S. would still be pumping supply from shale plays at an insane pace.

But unless the U.S. completetly isolates itself from the rest of the world (which is pretty much impossible at this point), the truth is that it will always be vulnerable to outside markets in some way.

In fact, being able to export LNG and put U.S. shale gas onto a global market would strengthen the U.S., not hinder it, and it's finally time for individual investors like us to take advantage of this buying opportunity...

Commodity Competition

You might've seen a report that was published this past Monday that said LNG would be facing off with coal on the Asian markets — this is part of that diminished demand situation I talked about earlier.

Fortunately, U.S. shale gas producers have a huge advantage here...

You see, these gas companies are faced with some very stark realizations: They must sell their natural gas domestically at multi-year low prices or tap into a market where prices are as much as 400% higher!

Don't get me wrong; prices will remain high for the time being, but there are other benefits that most investors don't recognize. The one that immediately comes to mind is that these LNG contracts are for the long term — sometimes 20 years or more.

And as I said above, natural gas prices may possibly recover soon anyway. Of course, any price rallies will be directly followed by increased investments by the industry.

So although it may take a while to see gas prices climb higher, they certainly won't stay as low as they are now forever.

Until next time,

Keith Kohl Signature

Keith Kohl

follow basic@KeithKohl1 on Twitter

A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.

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