Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Don't Expect More LNG Exports Anytime Soon

On Tuesday, the Department of Energy's (DOE) assistant secretary for fossil energy, Christopher Smith, testified before a congressional committee on liquefied natural gas, or LNG, exports. While he acknowledged the opportunities natural gas provides, he said that the DOE would not rush to any decisions on exporting natural gas.

Natural gas boom
Natural gas is a massive opportunity for the United States. However the opportunity is being curtailed as low prices have caused companies to stop drilling for natural gas and switch their focus to oil. SandRidge Energy (UNKNOWN: SD.DL  ) was one of the first natural gas drillers to switch its focus from natural gas to oil back in 2008. The rest of the industry has been following the shift with even natural gas leader Chesapeake Energy (NYSE: CHK  ) now concentrating on drilling for oil. The natural gas production boom has only lasted because drilling for oil yields some associated natural gas which has kept the level of natural gas production in the U.S. stable.

While natural gas prices are low in the U.S., they are two to four times higher around the world. Natural gas companies would like to take advantage of the price disparity, but currently the U.S. does not have the capacity to export LNG. Cheniere Energy (NYSEMKT: LNG  ) got permission from the DOE in 2011 to export LNG to countries that are not members of the free trade agreement; however, after approving the proposal the DOE decided to hold off on approving any more until studies could be completed on the macroeconomic effects of LNG exports and to make sure that LNG exports did not "subsequently lead to a reduction in the supply of natural gas needed to meet essential domestic needs."

Natural gas companies would like to export as soon as possible as they are losing money on natural gas. Opposing natural gas exports are Dow Chemical (NYSE: DOW  ) and other manufacturers that use significant amounts of natural gas, for exports will raise the price they must pay for natural gas.

Yesterday, the DOE's Smith testified that the department is committed to the publicly transparent process it has set out for export application reviews. In his statement, Smith emphasized that "DOE is committed to moving this process forward as expeditiously as possible. DOE understands the significance of this issue -- as well as the importance of getting it right."

In the question and answer session that followed, Smith went on to recognize that the issue is contentious and that the DOE will not hurry the export reviews. According to Politico, Smith said: "We’re moving forward in a way that’s open, transparent and which yields a decision that’s going to withstand the scrutiny it’s going to receive. A decision that doesn’t withstand scrutiny is not going to be useful for the concerns you have and will be the wrong decision for the country."

The DOE is right to not hurry the export reviews, but hopefully the government sticks with its timelines and acts in a timely manner. We have seen in the Gulf of Mexico how government delay can seriously constrain production. Hopefully the government begins approving export applications and the process is not bogged down by rehearings and court reviews.

The U.S is not the only country trying to take advantage of the disparity between North American prices and the world's prices. Canada is also seriously considering LNG exports as it recognizes it can make significantly more money selling its natural gas elsewhere. The country already has one facility up and running at Kitmat which is a joint venture between Chevron (NYSE: CVX  ) and Apache (NYSE: APA  ) . While the facility is rather small and currently not connected to a pipeline, work is under way to rectify the situation.

North America has a significant competitive advantage in natural gas compared to the rest of the world. That advantage is not being fully exploited as low prices hamper more production. No matter how the export decisions go, that natural gas needs to be moved from the fields to where it is in demand.

It's easy to forget the necessity of midstream operators that seamlessly transport oil and gas throughout the United States. Kinder Morgan is one of these operators, and one that investors should commit to memory due to its sheer size – it's the third-largest energy company in the U.S. – not to mention its enormous potential for profits. In The Motley Fool's premium research report on Kinder Morgan, we break down the company's growing opportunity – as well as the risks to watch out for – in order to uncover whether it's a buy or a sell. To determine whether this dividend giant is right for your portfolio, simply click here now to claim your copy of this invaluable investor's resource.

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

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 March 21, 2013, at 5:51 AM, amvet wrote:

    Correction. The US does indeed export LNG. The one facility in Alaska in old, functioning, and profitable.

    In addition, once an export facility has approval, there are the problems of buying, receiving, and installing the compressors and other equipment needed. This takes time and much money.

  • Report this Comment On March 21, 2013, at 1:32 PM, ffbj wrote:

    Yes, lets build more terminals so that the energy companies can export lng thereby raising the price domestically. Seems like a no-brainer to me.

  • Report this Comment On March 21, 2013, at 2:11 PM, caztx wrote:

    You may want to correct the spelling of Cheniere - although it was funny as written as it looked a lot like "Derriere".

  • Report this Comment On March 22, 2013, at 12:20 AM, elektrotherapy wrote:

    How about we limit exports of everything America produces to keep prices down?

    Derponomics 101.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2323640, ~/Articles/ArticleHandler.aspx, 9/27/2016 4:54:25 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 7 hours ago Sponsored by:
DOW 18,094.83 -166.62 -0.91%
S&P 500 2,146.10 -18.59 -0.86%
NASD 5,257.49 -48.26 -0.91%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/26/2016 4:02 PM
APA $59.94 Down -0.08 -0.13%
Apache CAPS Rating: ***
CHK $6.62 Down -0.01 -0.15%
Chesapeake Energy CAPS Rating: ***
CVX $98.78 Down -0.44 -0.44%
Chevron CAPS Rating: ****
DOW $52.13 Down -0.11 -0.21%
The Dow Chemical C… CAPS Rating: ****
LNG $42.90 Down -0.82 -1.88%
Cheniere Energy CAPS Rating: ***
SD.DL $0.00 Down +0.00 +0.00%
SandRidge Energy CAPS Rating: ***