The Fate of Canadian Natural Gas

Keith Kohl

Written By Keith Kohl

Posted October 23, 2011

Years ago, you could always pinpoint the exact time to trade natural gas stocks.

It was simple enough, really…

Load up during the summer months — when demand was at its weakest — and sell right as the winter heating demand rolled in.

It was a seasonal demand cycle you could set your watch to:

natural gas demand us eia

This coming winter, though, things will be different.

With the oversupply right now in the North American gas markets — thanks to the boost of unconventional production and lower-than-expected demand in 2012 — you can understand why we’re not holding our breath for a severe price spike in the near future.

And truth is, we don’t need it.

We’re anticipating some of the best natural gas buys during this recession. And it’s all thanks to Chinese demand…

Or is it?

Battle in the Pacific

To say that natural gas demand in China is growing would be an understatement.

Though China’s gas output grew nearly 7% in the third quarter of 2011, it’s also painfully obvious that the country’s imports are heading higher.

During the last nine months, the country imported more than 22 billion cubic meters of natural gas — 89% higher than a year ago.

Between July and September, Chinese natural gas demand jumped 21% to 30.6 billion cubic meters.

Until China is proficient enough to tap their own unconventional reserves — and without a new pipeline to Russia — there’s one place they’ll look to quench their thirst for more gas. And that’s with LNG.

Unfortunately for them, there’s some stiff competition in the area…

Ever since the Fukushima disaster, Japan has been in a battle to offset the loss of its 11 GW of nuclear power generation.

So far this year, the island nation has imported an extra 11 billion cubic meters of natural gas.

According to Platts, the top 10 Japanese power utilities consumed a record 24.73 million tonnes of LNG between April and September.

About a month ago, I wrote how British Columbia’s Kitimat project was ground zero for Canada’s LNG exports. The project was recently approved by Canada’s Nation Energy Board, paving the way for future LNG shipments across the Pacific.

The future also just got a whole lot brighter for two of my favorite natural gas plays…

Together, Apache Corp. (APA) and Encana Corp. (ECA) hold a 70% stake in the Kitimat LNG project. Both stand to take full advantage of the Asian war brewing over Canadian gas.

Later on next week, I’ll show you a second way investors can take a piece of these profits.

Enjoy your weekend,

kpk sig

Keith Kohl
Editor, Energy and Capital

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