ExxonMobil Wins Either Way With Natural Gas Exports

The funny thing about the natural gas export debate is that both sides are claiming the exact same thing -- that they will help create more American jobs and bring down the trade deficit through more exports. So how can we tell which side offers the better argument? Dow Chemical (NYSE: DOW  ) and ExxonMobil (NYSE: XOM  ) , have been two of the most vocal advocates on opposite sides of the debate, and have recently taken a couple of shots across each others' bows.

What makes this story even more interesting, though, is that ExxonMobil is poised to do well no matter what side wins this debate. Let's take a look at why these two sides of the argument are claiming the same benefits for the U.S. and how ExxonMobil could come out on top no matter what.

The debate
Thanks to the recent surge in natural gas production, many have debated the merit of exporting liquified natural gas, or LNG. Certainly a market opportunity exists, but is this market opportunity in the best interests of the nation? On the side for exporting LNG is ExxonMobil, which claims that it would spur an even further increase in natural gas production, and in turn create more jobs and lower the country's trade deficit. Exxon isn't the only one on this side of the debate, either. Over 17 different sites in the U.S. have been identified as potential locations for LNG export, and 10 of them have gone to the Federal Energy Regualtory Commission for an export license.

As of right now, Cheniere Energy (NYSEMKT: LNG  ) has the only approved license to export to countries that are not members of a free trade agreement. The license allows them to export at a rate of about 2 billion cubic feet per day, or about 3% of the total current U.S. production. While it is difficult to determine how much production would increase if more of these proposed facilities were to come online, certainly we can assume that the percentage of production going to exports would increase significantly.

On the other side of the coin, we have a large base of manufacturers in the U.S. that claim by not exporting natural gas, we would be able to use this advantaged feedstock to power the manufacturing industry in the U.S. This would in turn create American jobs and decrease our trade deficit by exporting finished goods.

Dow Chemical is one of the first companies that comes to mind on this side of the debate because chemical manufacturing has seen some of the most immediate effect from cheap natural gas as a chemical feedstock. Other sectors that also see major advantages from not exporting natural gas are energy intensive endeavors like power generation and aluminum and steel manufacturing.

Atlantic Power (NYSE: AT  ) generates almost 66% of its power exclusively from natural gas, and the cheaper cost of generating power could potentially inspire power hungry industries to consider the U.S. Also, steelmaker Nucor (NYSE: NUE  ) has plans to resurrect one of its steel mills in Louisiana thanks in large part to cheaper energy from natural gas. Both of these companies have either expressed their concerns over exporting natural gas, or have directly benefited from the current gas market.

The real winner
Despite Exxon's preference to export natural gas, it could also directly benefit from natural gas staying on U.S. shores as well. Not only is Exxon a premier producer of natural gas in the United States, it is also one of the premier petrochemical manufacturers.

Exxon has a new ethylene production facility that will be coming on line in 2016. This new facility, which will use natural gas liquids as a feedstock for building an essential building block for most plastics, is expected to produce about 1.5 million tons per year of ethylene, which adds up to about 666 million cubic feet per day of natural gas equivalent. The company also has proposed an LNG export terminal for the Sabine Pass in Texas that could move 2.6 billion cubic feet per day. So while the company is publicly advocating for natural gas exports, it does have a hedging strategy in place in the form of its chemical production facility just in case natural gas exports never come to fruition. 

What a Fool believes
Either way you look at the natural gas export debate, there will be a gain in jobs and a reduction in the trade deficit. The only subtle difference between the two is where those jobs and increased exports come from. If we decide to export, then natural gas prices will most likely rise and producers will see the largest benefit. If natural gas needs to stay within our borders, then the benefit moves downstream to consumers of natural gas who will export their products thanks to cheap feedstocks and cheap energy sources in the U.S. The debate on whether to export or not depends upon picking who will benefit the most.

Whichever side of the coin this debate lands on, there are some ways for investors to profit no matter what. Certainly Exxon's plans give the impression it is ready no matter what happens, and Enterprise Products Partners, with its superior integrated asset base, can profit from moving natural gas to either factories or export terminals. To help investors decide whether Enterprise Products Partners is a buy or a sell today, click here now to check out The Motley Fool's brand-new premium research report on the company.

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  • Report this Comment On April 03, 2013, at 10:36 AM, JackRafuse wrote:

    Speaking of winning no matter what happens, look at Dow Chemical.

    Dow CEO "Pants" Liveris denied it in a Senate Energy Committee hearing, but according to legal documents and press releases, "Texas LNG Holdings LLC a Delaware limited liability company and wholly owned subsidiary of The Dow Chemical Company, which holds a 15% limited partnership interest in FLNG Development." FLNG Development is the legal name for the Freeport LNG Export Project, which is currently at the top of the list of a DOE LNG export license.

    Take a look at the 12/17/2010 law firm submittal to DOE in favor the the export license, or the 2/13/2013 PRNewswire release announcing a new, 20-year, binding supply contract with BP, for 4.4 billion tons of LNG.

    It's hard to imaging that the Dow CEO wouldn't know about a $300 million partnership in the LNG export project by a wholly-owned subsidiary. The result of that holding is that Dow would continue to benefit by getting the world's cheapest domestic gas, and would be the next in line to export LNG at virtually guaranteed profits. What Dow wants, of course, is to be the last licensed exporter; that would cement their two-way entitlement.

    Dow recruited other companies to protest and lobby against "indiscriminate" LNG exports; clearly they don't think that theirs would be indiscriminate.

    So who does win between Dow and Exxon on this issue?

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