Natural Gas Investing: The Importance of Imports and Exports

If you’re looking to invest in natural gas, you should understand how natural gas is transported. Before liquefied natural gas (LNG) could be viably shipped, the natural gas industry was tied down to regional markets. It all boils down to how the resource is transported. Unlike crude oil, which can be shipped via freight, tanker, pipeline, and even trucks, the overwhelming amount of natural gas is supplied by pipeline.

In other words, the price for 1,000 feet of natural gas in China can drastically differ from the price for the same amount you can buy in Louisiana — and it certainly does! Today, natural gas prices in Europe and Asia are double, even triple, the prices in North America because of the supply glut currently seen in the United States.

If America begins to export natural gas, the gap could be closed.

Before the rapid development of shale gas plays began in 2006, the United States was growing increasingly dependent on foreign gas supplies. To show you how crucial pipelines are for natural gas exports, look no further than the United States. Almost 95 percent of all U.S. natural gas imports are received by pipeline from Canada. North America is flooded with natural gas because of two main factors:

  • U.S. domestic gas production increased 26 percent to about 29.7 Tcf in 2012, which was more than the country consumed.

  • The first exports of North American LNG aren’t expected to begin until 2015.

If you’re interested in exactly how the shale gas boom has changed the picture, consider the following: U.S. imports of liquefied natural gas rose almost nine-fold between 1997 and 2007. Today, they’ve fallen to levels not seen in more than a decade, as gross withdrawals from shale gas wells increased by more than 300 percent.

The advent of LNG exports, however, will finally allow the natural gas industry to do something it has never done before — trade on a global scale.

The process of liquefied natural gas involves chilling natural gas to approximately –260 degrees Fahrenheit. At that temperature, it turns to a liquid that takes up only 1/600th the volume of typical natural gas and can be transported by special tankers.

Nearly 20 countries exported LNG to more than two dozen others during 2012. Although the amount of LNG being exported worldwide makes up a trivial quantity compared to pipeline exports, the LNG trade is quickly gaining steam. This table shows the top ten natural gas–exporting countries in 2011, including pipeline gas and LNG.

Top Natural Gas Exporters
Country Annual Net Exports (Billion Cubic Meters)
Russia 196 Bcm
Qatar 119 Bcm
Norway 99 Bcm
Canada 63 Bcm
Algeria 49 Bcm
Indonesia 46 Bcm
Netherlands 33 Bcm
Turkmenistan 29 Bcm
Nigeria 26 Bcm
Malaysia 22 Bcm

There’s likely to be a mad dash by companies in both Canada and the United States racing to become the first LNG exporters in North America. At the beginning of 2013, the only project approved that was scheduled to begin exporting LNG as early as 2015 was Cheniere’s (NYSE: LNG) LNG terminal, located on the Sabine River between Texas and Louisiana.

Before a company can begin production on a new LNG facility, it must receive approval from both the Department of Energy (DOE) and the Federal Energy Regulatory Commission (FERC). As of April 2012, eight projects were approved by the DOE, with one under review and one approval pending.

FERC had approved only the Sabine Pass project. For a complete list of the proposed and approved projects in the United States, check out FERC’s website.

When looking for the right natural gas investment, remember that North American LNG exports will take between three and five years to get started — and that’s assuming there are no major delays along the way. As of today, the United States is still a natural gas importer. You can see the top natural–gas importing countries in this table.

Top Natural Gas Importers
Country Annual Net Imports (Billion Cubic Meters)
Japan 116 Bcm
Italy 70 Bcm
Germany 68 Bcm
United States 55 Bcm
South Korea 47 Bcm
Ukraine 44 Bcm
Turkey 43 Bcm
France 41 Bcm
United Kingdom 37 Bcm
Spain 34 Bcm
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