Texas LNG Export Investing

Brian Hicks

Written By Brian Hicks

Posted May 13, 2013

The U.S. LNG market is slowly but surely inching its way forward.

Exxon Mobil (NYSE: XOM) penned an agreement with Qatar Petroleum International that would add more capabilities to its existing Golden Pass import facility in Sabine Pass, Texas and construct an export terminal through the companies’ subsidiary Golden Pass Products LLC. The additional components are expected to hold an export capacity of 15.6 million tons of LNG per year.

natural gasThe already-constructed plant includes five LNG storage tanks, two berths, and a 69 mile pipeline connecting to intrastate and interstate pipelines.

The additional work will make use of currently-existing infrastructure, with the addition of new facilities for pre-treatment and liquefaction of natural gas. The project alone is worth $10 billion, and the company touted the new project’s contribution of tax revenue and job creation to economies at the state, local, and federal levels.

The project may foster 9,000 construction jobs over the course of five years and could lead to the direct and indirect employment of 45,000 people nationwide.

Golden Pass already won approval from the Department of Energy (DOE) for the export of LNG to nations under Free Trade Agreements (FTA) with the United States. The project now needs the green light to export to non-FTA countries.

When it comes to DOE approval, Golden Pass will need to go through the usual evaluation of energy security to determine whether or not the project will be in the interest of the public good. The Federal Regulatory Commission (FERC) will then evaluate the deal in regards to safety standards.

Golden Pass has a strong chance of passing all government regulations, but the time frame in which the deal will be approved is another matter.

The DOE has not exactly been hasty about approving large-scale LNG projects, which is a shame considering how high LNG demand is becoming worldwide.


For many energy companies that deal in natural gas, the best bet of yielding profit is exporting natural gas or converting it to LNG for overseas shipment.

The oil and gas boom left natural gas dealers struggling to thrive in the domestic market because of low prices up against high drilling costs. Exports could allow companies to sell the gas for a higher price, filling in the gap between revenue and costs.

So far, only one export terminal has been approved – Cheniere’s (NYSE: LNG) Sabine Pass. But President Obama expressed support for more natural gas exports as a way of increasing U.S. influence abroad.

So what’s the hold up?

The nature of government bureaucracy is delay, but politics and lobbying seem to be at play as well. Special interest groups and some politicians believe exports would raise domestic energy costs while adding undue burden to the manufacturing sector.

Environmental groups are also concerned that more exports would encourage widespread use of fracking.

If all exports were approved, it is estimated that over 40 percent of LNG currently in production would be shipped abroad, according to Fox News, prompting criticism that exporting natural gas resources abroad would only drain the country of its natural resources. And this is something the DOE considers in its approval process.

But since the U.S. natural gas market is undergoing a glut right now, it would only make sense for energy companies to ship to countries where there is significant growth and demand.

One can only speculate whether the slow process on the part of the DOE is deliberate, or if some facilities may be turned down if the agency believes too many export facilities would endanger public or government interests. The official stance of the DOE right now is that the Department is receiving and evaluating all applications in the order they are received.

Regardless of the reason, the delay in approval only holds back American competition. Australia is set to become the number one exporter of LNG in the world, where they can ship directly to growing economies in Asia. South Korea’s LNG imports went up 19 percent in 2013 – making that country the second largest importer of LNG in the world behind Japan.

And let’s set the LNG issue aside for a moment.

The Russian natural gas market is about to become a little more competitive too, as some analysts believe the Russian government will lift its favoritism on Russia’s largest natural gas exporter, Gazprom (MCX: GAZP).

Russian President Vladimir Putin called for the “slow liberalization” of Russia’s natural gas market, and he may very well listen to the pleas of state-run petroleum giant Rosneft OAO (MCX: ROSN) and Novatek OAO (MCX: NVTK) in allowing those companies to compete against Gazprom.

Putin and energy companies in Russia have the same idea of shipping natural gas to Asia as a way of compensating for lacking demand in Western Europe.

But even within Europe, there is still profit to be made. The U.K. is still a large importer of natural gas.

And the U.S. could move in on Russian business territory in Poland and the Ukraine, where leaders of those nations would be more than glad to dump high-priced Russian imports.

Frankly, the delays already caused the U.S. to miss an opportunity to pit more U.S.-based energy export companies against Russia’s consolidated monopoly market. When it comes to the free market versus a government-backed monopoly system, competition will win every time. Now that Russia is showing signs of lifting Gazprom’s natural gas monopoly, Russian companies will be far ahead of competitors headquartered in the United States.

With the flood of natural gas on the market, it would be crazy not to fully engage the LNG market and compete with other nations.

The U.S., with a mere skeletal manufacturing base, does not have the tools to produce and export goods abroad as other nations like Germany do. LNG would be a solid source of export revenue, but there needs to be less bureaucracy, waffling, and politics, and more decisive action.

LNG Investments

LNG investors know that government delay is stifling the natural gas export market in the U.S., but there is a ray of hope. Let’s remember that these facilities create jobs and contribute revenue to the government, so don’t expect too much delay or the arbitrary rejection of export terminals.

At a time when the government craves revenue and needs to open windows for more job creation, economic pressures may triumph over other concerns.

The same applies to fracking.

Hydraulic fracturing goes against the Obama Administration’s green energy agenda, but officials recognize its importance in keeping the oil and gas boom alive.

In order to keep the pressure in approving more LNG terminals, there must also be investment support. Natural gas will become the fastest growing source of energy beyond 2030, and many companies are catching onto this growing trend. While there is nothing you can do about the holdups, you can look to companies that already have a hand in the market.

Exxon Mobil is one of many companies keen on converting natural gas to LNG for shipment abroad. The company also has 35 years of experience in the LNG production and shipment. Royal Dutch Shell (NYSE: RDS-A) also has links to one-third of LNG operations worldwide.

As an LNG investor, keep a watchful eye on Texas and the Gulf Coast region because of Exxon Mobil and Cheniere activity, and Dominion’s (NYSE: D) Cove Point in the state of Maryland and the surrounding East Coast. These are some areas where companies hope to expand their export facilities, but applications remain on the backburner right now.

Until then, LNG and natural gas investors in the U.S. will have to wait and see.


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