Natural Gas Export Investing

Written By Brianna Panzica

Posted January 26, 2013

In April 2012 the U.S. economy was still working its way back from the recession.

Unemployment was at 8.1 percent, continuing a slow and bumpy descent from the 2009 high of 10.0 percent. Home sales were growing, but they were still a long way away from pre-recession levels. Retail sales had slowed back down that month after a brief pickup.

But the domestic natural gas sector was booming.

Natural gas production was becoming the pride of the nation. The shale boom that had been ongoing for several years finally hit the mainstream media.

That same month, natural gas prices fell below $2 to reach ten-year lows.

Since that point, the nation has been buzzing with talk of natural gas exports.

Net Benefit

In Europe and Asia, natural gas prices are substantially higher than they are in the U.S.

European natural gas imports in December were priced at $11.79 per million British thermal units (mmBtu), while Japan’s LNG imports were priced at $16.49 per mmBtu.

And though production was still booming in the U.S., the low prices had started to hurt production companies…

European and Asian prices started to look very attractive. In fact, they still do — even with natural gas back up to $3.53 this week.

But exports can’t happen until these companies set up contracts with purchasers, find locations for their export terminals, and, most importantly, receive clearance from the Energy Department.

The approval of proposed export terminals has been one of the main energy debates among politicians lately. The Energy Department’s recent review of the impacts discovered that natural gas exports would have a “net economic benefit” for the nation over the long term.

After a period of responses from the general public, they now move to a review of the proposed terminals.

It isn’t really too much of a mystery at this point. While nothing has been made official, it’s starting to look like natural gas exports will happen.

And why not? Exportation would help the production companies and stimulate the economy.

But How Much?

Here’s the real question: To what extent should these exports occur?

It’s this very question that has two major energy companies fired up…

Dow Chemical Co. and ExxonMobil Corp. both rely on natural gas as part of their operations. Dow Chemical uses natural gas in its chemical production; Exxon is, of course, a major natural gas producer with stakes in the Bakken and other major shale gas deposits.

As it’s on the demand side of things, Dow Chemical wants to see a quota set up to limit natural gas exports in order to keep domestic prices from inflating.

But Exxon is a producer. And exports mean revenue. Exxon believes a restriction on exports will taper job growth and economic expansion.

That’s shaping up to be the fight that Congress will have to deal with — and not from these two companies alone…

Companies on the production side will be open to unlimited exports, benefiting from higher prices abroad and the capability to ramp up production of these expensive wells while still bringing in a profit.

But those that use the natural gas, particularly utilities or companies like Dow Chemical, will balk at the idea of a price increase. And prices will rise when this high supply is suddenly tightened.

No one can deny the reality that the U.S. economy could use the boost. Even Dow Chemical and members of the coalition it heads, America’s Energy Advantage, support natural gas exports.

But they don’t see eye to eye when it comes to how much the U.S. should let exports go unconstrained.

Fortunately, the benefit for investors like you is there regardless of companies’ opinions…

When natural gas exports are approved, prices will jump (if Dow gets its way, they won’t increase much — but they’ll go up nonetheless) and producers will thrive.

Natural gas will create jobs. It will create revenue. And it will bring you profits.

You’ll want to position yourself before natural gas becomes a major export.

Good Investing,

Brianna Panzica for Energy and Capital

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