The No. 1 Export for the Future

The great Tom Petty once wrote, "The waiting is the hardest part." While fans may claim he was addressing intimate relationships, I know he was really lamenting the time it takes to build a liquefied natural gas export terminal. Apache (NYSE: APA  ) is well under way with plans to develop such a facility outside of Vancouver, but even if everything goes according to plan, the plant won't be up and running until 2015.

But we're buy and hold long-term investors, right? Three years is no big deal! Let's take a look to see if this news makes Apache a consideration for our portfolios.

Project stats
Apache will operate the plant in conjunction with EOG Resources (NYSE: EOG  ) and EnCana (NYSE: ECA  ) . The plant will sit 400 miles north of Vancouver in Kitimat, British Columbia. A 287-mile pipeline operated and maintained by Pacific Northern Gas will run from Summit Lake, B.C., to Kitimat. The expected price tag for the project is $3.5 billion.

Business discussions are under way to lock in customers in the Asian markets, and again, first shipments aren't expected until 2015.

The LNG situation in North America
Right now, there is no facility in North America capable of liquefying natural gas for export, which makes the Kitimat facility incredibly important. Cheniere Energy (AMEX: LNG  ) also has a facility project in the works on the Gulf Coast, but its construction is subject to further federal regulatory approval. At a price tag of $6.4 billion, the company that hasn't made a profit in 13 years also needs to come up with financing, securing Kitimat as North America's most likely bet right now.

Is it worth it?
It only takes a minute to figure out why these companies are willing to put billions of dollars toward building these export facilities. The price of natural gas in North America is $4 per million cubic feet; the price of natural gas in Asia can be as high as $13. Demand in Asia is skyrocketing: China's consumption alone has risen 20% in the last seven years. As fellow fool Dan Dzombak shows, even when you factor in the costs of liquefaction and transport, companies still stand to make a killing exporting natural gas.

Additionally, exporting natural gas would cut the supply available for sale in North America and drive up prices, which currently sit at half of what they were in 2008. This is especially important considering that right now most North American natural gas producers aren't making money on the stuff.

Global competition
There are existing LNG export terminals across the world that could threaten Kitimat's potential success, most notably those in Qatar and Australia. In fact, more than $200 billion worth of LNG ventures have been proposed in Australia by big oil and gas players like Chevron (NYSE: CVX  ) and Royal Dutch Shell (NYSE: RDS-A  ) .

Still, Kitimat will likely be investors' best chance to play the LNG export market in North America. Global competition is a risk, but the plant is 1,000 miles closer to Shanghai than Qatar, with access to all of the gas reserves Western Canada has to offer.  

Foolish takeaway
It's going to be a three-year race to the finish to see if Apache is able to cash in on Asia's high demand for natural gas. It certainly looks to be the best bet coming out of North America, but whether it can compete with other global powers remains to be seen.

Want to stay up to date on Apache's progress? Click here to add it to My Watchlist.

Fool contributor Aimee Duffy doesn't own shares of the companies mentioned in this article. If you have the energy, check out what she's keeping an eye on by following her on Twitter @TMFDuffy.

Motley Fool newsletter services have recommended buying shares of Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 09, 2011, at 5:05 PM, radicall wrote:

    I think there are a lot of opportunities IF the transportation issues can be resolved, and IF the pipelines for transporting the gas and oil get the regulatory approval.

    Just look at the Brent/WTI spread, just the same as the nat gas spreads - creates so many opportunities for US producers if it stays this way for a while.

    It is not just an issue of when but also a matter of IF. I am long EOG, definitely looking at LNG/GLNG for an entry

  • Report this Comment On September 10, 2011, at 11:06 PM, busterbuddy wrote:

    But the question is why are WE not moving to LNG?

    Is it because we are CLUELESS?

  • Report this Comment On September 10, 2011, at 11:19 PM, TMFDanDzombak wrote:

    We are, it's just these things take time. First 2 export facilities in the U.S. should be done around 2015

    http://www.fool.com/investing/general/2011/07/07/huge-divide...

  • Report this Comment On September 12, 2011, at 1:33 PM, LNGTSS wrote:

    The first US LNG export facility (owned by ConocoPhillips) began operation in 1969 and has been in operation coninuously ever since, shipping from the Kenai Penninsula in Alaska via contract to Japan. It is shutting down in October due to lack of market.

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