Who Will Win LNG Export Race?

Brian Hicks

Written By Brian Hicks

Posted December 10, 2013

The race is on for LNG exports to Asia. Eager companies are looking to participate in the export market as the U.S. Department of Energy is hesitant to approve more applications. Producers are also looking to develop the western tar sands region in Canada, and the Land of Maple Syrup is already fostering business ties with China.

The Russians are not only looking to introduce its ESPO crude benchmark in Asia, but are also considering liberalizing their natural gas market monopoly favor on Gazprom OAO (MM: GAZP) to allow more companies to ship LNG to Asia.

lng exportWho will come out on top?

For now at least, it seems to be the Russians. They have direct market access to Asia, and their monopoly gas hold on Europe could very well extend to Asia if the U.S. and Canada are unable to compete.

But as much as the U.S. may be behind in the LNG market, Canada is still trailing its neighbor down south.

Canada is dealing with a worker shortage, and as a result, wages are 60 percent higher than in the U.S. An energy worker can make $44.80 an hour in Canada versus only $29.50 in Texas, Bloomberg reports.

Over the next decade, roughly 50,000 jobs will need to be filled in Canada’s energy sector, but producer efforts and government initiatives seem to be falling short.

As good as the DOE is at slowing down LNG exports, the government has approved 6.8 bcf per day for the year compared to 4.6 bcf per day in Canada.

While the DOE has 20 applications in limbo, Canada’s National Energy Board has seven applications.

North American Comparison

Even though Canada and the U.S. are shale energy partners, Canada is still on top when it comes to the energy race. Canada has no restrictions on sending LNG abroad to non-FTA countries, and even though Canada is behind the U.S., it is in a better position going forward – if it is able to foster the necessary infrastructure.

The reason the DOE is preventing the export of more LNG abroad has more to do with “national interest.” When it comes to the political world, no politician wants to be seen responsible for raising natural gas prices, especially during the winter season. You can only imagine the firestorm if prices rose even further in the East Coast market.

But it is a shame, since natural gas prices are too low for some producers in parts of the country to ramp up production. Analysts are saying that this slow process is depriving them of precious markets abroad. Many countries like Poland and Ukraine are trying to get out from under Russia’s thumb in regards to natural gas.

The U.S. could make vital inroads in supplying LNG to these markets and Asia.

Nations like Mongolia are also trying to steer clear of Russia’s Rosneft OAO (MM: ROSN), and South Korea is becoming a top importer of LNG. Currently, Japan is the number one consumer of LNG in the world.

Dominion Resources (NYSE: D) has long fostered business relations with Japan in regards to LNG, and it has even forged deals with the country. But bureaucracy stands in the way, frustrating overseas partners, which may force them to turn to the Russians for supply.

Though Canada has approved fewer LNG exports, the country is just getting started in the LNG market. But the Canadians have their own fair share of problems, since they are dealing not only with a lack of infrastructure, but also with a lack of qualified workers.

Where to Invest?

If you’re looking for some solid LNG exports abroad, Dominion Resources recently won limited approval from the DOE for its Cove Point facility in Maryland. And this year, Cheniere Energy (NYSE: LNG) won a contract that will supply LNG to the U.K.

Royal Dutch Shell (NYSE: RDS-A) is also looking to profit from exports from Canada to the Asian markets. But of all major companies, Chevron (NYSE: CVX) is most ahead in the pipeline race. The company is looking for more workers for projects in Western Canada for direct shipment to Asia. And Canada wants to add $50 billion overall in infrastructure for the LNG market.

But companies like BP (NYSE: BP), Shell, and Chevron are also looking to the U.S. as well, possibly constructing a pipeline in Alaska for LNG shipment.

Oregon and other parts of the West Coast are also being looked upon as strategic locations.

But until the U.S. approves more facilities, Canada is your best bet, since that country does not have the same restrictions.

Maybe one day the DOE will realize more approvals are necessary, but don’t hold your breath in the meantime.


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