We cannot build the future by avenging the past… or can we?
In fact, that's exactly what we're doing with our energy future right now. I know I'm not the only one who sees the United States' energy dynamic shifting — you should, too.
The good news is that if you haven’t realized what’s happening yet, then your timing couldn't be better right now... and you can thank the war on coal for your future windfall of profits from our energy landscape.
Coal was once the powerhouse of the United States. We couldn’t survive without it!
But now our reliance on it is diminishing and we’re turning to something else: natural gas.
The transition away from coal is happening now, and you have two options: take advantage of it or miss one invaluable buying opportunity in natural gas.
In 2015, an overwhelming 91% of U.S. coal power was used in the electric power sector.
This turned out to be the Achilles heel of the coal industry.
You see, coal once generated more than half of all power in the United States. That share has fallen to a little more than one-third of the power sector.
The blame for the death of coal could go to any one of several catalysts: pressure from environmentalists, public sentiment on the industry turning increasingly ugly, or even the EPA's all-out war against coal producers via its Clean Power Plan.
Sure, each has its own contribution, but there's one thing that has done more to kill coal than anything else...
Natural gas has finally overtaken coal in the U.S. energy mix:
That's no easy feat, mind you. The U.S. has been in love with King Coal for more than a century.
Now, the Energy Information Administration (EIA) sees natural gas keeping its place as a top U.S. electricity source through 2040 — and at that point, coal may have gone the way of the dodo.
So what was the final straw for coal?
Despite the quickening growth of renewables like solar and wind, it was actually hydraulic fracturing that put the final nail in coal's coffin.
Hydraulic fracturing, which you can read about in full here, is an oil and gas drilling technique that breaks up the brittle shale rock and frees more of the fuels for use.
It spurred the U.S. shale revolution and put the U.S. back on the global energy map.
Shale gas supplies held two very important traits: they were abundant, and they were cheap.
Over the past decade or so, as the push for clean energy has grown around the world, the main thing holding us back from shutting coal down for good was price.
It produced reliable, affordable energy. What more could we want?
Newly tapped shale resources changed that, however. In just a few years, abundant shale resources led to a supply glut, which in turn pushed natural gas prices low enough to finally compete against coal.
In fact, plays like the Marcellus shale of Pennsylvania almost singlehandedly drove gas prices lower, even making up for long-running declines in our conventional production.
U.S. natural gas production has grown by more than 10 quadrillion cubic feet per year in the past decade and shows no signs of slowing down!
Now, the U.S. has been a top natural gas producer for years. But what it’s never been (until now) is a top gas exporter.
In fact, until 2016, the vast majority of U.S. gas went either to domestic consumption or exports via pipelines to Canada and Mexico.
This surplus supply, however, offered a new option…
Transportation options for natural gas are a little limited. It can be sent in small amounts on trucks, or in larger quantities via pipeline.
But pipelines only work on land or through a reasonable amount of water…
To get the gas, say, to customers across the ocean, you’ve got to make it into something else entirely.
LNG stands for liquefied natural gas. It’s gas that has been supercooled and stored in tankers, which can then carry it safely across the ocean. Safety is the main concern here, as those tankers can be on the move for months at a time.
Until 2016, the U.S. was not in the habit of exporting its gas this way.
That’s because until then, the country just didn’t have the infrastructure.
But that year, the first LNG export terminal in the Lower 48 came online and began collecting long-term contracts immediately. U.S. LNG has gone to customers in the Middle East, Asia, and Europe for the first time ever!
As of April 2017, the U.S. finally became a net natural gas exporter.
It’s no wonder, given how quickly the country’s exports have grown in the last few years:
This was a huge achievement, and it’s still only the beginning…
What’s interesting about the situation in which natural gas finds itself today is that, unlike most logical commodity trades, low prices are actually a good sign!
So long as it’s cheaper than coal, countries will continue replacing coal capacity with gas.
And when the transition is too far to reverse, it won’t matter how high natural gas prices go. Once the recovery takes off in full, buyers will just keep buying this increasingly essential fuel.
This is especially true in the LNG trade, which is inherently more expensive than traditional pipeline transmission for several reasons. Essentially, sending LNG as opposed to regular natural gas is like selling refined oil products rather than freshly produced crude: consumers are paying for the extra work it took to transform the fuel.
Not to mention the cost of actually transporting the LNG across the ocean. Tankers are often contracted for years at a time, which makes it easier for exporters to sell at higher futures prices.
Right now, there is only one operational LNG export terminal in the U.S.: Cheniere Energy’s Sabine Pass. According to the Federal Energy Regulatory Commission, another five export terminals have been approved and are under construction, and four are approved but not under construction yet.
Total, these terminals will add 14.34 billion cubic feet per day to U.S. LNG export capacity, in addition to the 3.5 billion cubic feet per day that Cheniere’s Sabine Pass will have once it’s complete. At that point, Sabine Pass will graduate from the only LNG export terminal in the country to the largest.
With all of this new capacity set to come online, the U.S. is expected to be on par with the world’s biggest LNG exporters within the decade.
Right now, Australia and Qatar hold the top two spots, accounting for about 30% and 18% of the LNG export market respectively. Right now, they’re followed by Malaysia with 9.7% of the market.
That won’t be the case for long…
When the U.S. began seeking out customers for its abundant natural gas supplies, it was happy to find a market desperate for its gas.
And since LNG is expected to account for more than half of natural gas trade by 2040, getting in on that action early will set you up to be paid back in spades later on.
Cheniere Energy (NYSE MKT: LNG) is the biggest name in this game today, and it’s getting bigger.
In addition to Sabine Pass in Louisiana, the company is building another export facility in Corpus Christi, Texas, which, when all is said and done, will be tied for second-largest export capacity in the country with Freeport LNG’s liquefaction plant.
The stock is up more than 220% over the past five years. With the LNG business booming, it’s expected to continue higher.
And this is far from the only opportunity we’ll see in natural gas as the push for cleaner energy sources continues. This is just the tip of the iceberg.