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



The Country That Could Become a Huge Importer of U.S. Natural Gas

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Last week, the Department of Energy authorized the Freeport LNG project to export gas to countries that don't have free-trade agreements with the United States.

The project -- a $10 billion plant in Quintana Island, Texas, partly owned by ConocoPhillips, Dow Chemical, and Osaka Gas -- is only the second LNG export venture to receive the department's approval, since Cheniere Energy's (NYSEMKT: LNG  ) Sabine Pass terminal in Louisiana was given permission back in 2011.

Much of the enthusiasm regarding US LNG exports stems from the large disparity between gas prices in the U.S. and those elsewhere in the world. Unlike oil, natural gas doesn't have a globally determined price, largely because of transport difficulties. That provides U.S. energy companies with lucrative opportunities to ship gas to foreign markets, where it can fetch several times its domestic price.

But while the recent surge of interest in U.S. LNG exports centers primarily on foreign non-free trade markets, especially in Asia, there's another huge market much closer to home that already imports huge volumes of U.S. natural gas. And over the next several years, it's likely to import much more. Let's take a closer look.

Mexico's demand for LNG imports
That market is Mexico. Because of the North American Free Trade Agreement involving the U.S., Canada, and Mexico, which was enforced beginning in 1994, Mexico and the U.S. can trade freely. Since that time, U.S. imports of Mexican crude oil have grown steadily, as have Mexican imports of natural gas.

In fact, U.S. exports of natural gas to Mexico have doubled over the past three years, according to a recent research note by Barclays. There are two key reasons underpinning this trend. Over the past three years, Mexico's economy and population have grown at a relatively fast clip, while its natural gas output has fallen 11%, creating greater demand for energy.

Looking ahead, Mexican demand for LNG imports is expected to rise significantly. Barclays estimates U.S. gas exports to Mexico to average 2 billion cubic feet per day this year and 2.2 bcfd in 2014. And beyond 2014, the volume of exports is expected to accelerate, as more pipeline capacity comes on line.

According to the nation's government-owned power generator, Comision Federal de Electricidad (CFE), nearly 20 gigawatts of gas-fired generation capacity will probably need to be developed over the next decade or so. The CFE further estimates that Mexican gas-fired plants will need about 3.8 billion cubic feet per day of additional gas to operate.

Cross-border pipelines
In addition to electricity generation, new industrial facilities are also driving demand for natural gas and prompting the construction of several cross-border pipelines. For instance, Petroleos Mexicanos is expected to shortly release bidding rules for part of the Los Ramones pipeline project -- a pipeline that will transport roughly 3 billion cubic feet of natural gas per day by 2015 from southern Texas to the central Mexican state of Guanajuato.

The 600-mile pipeline is just one of several expected to come online over the next few years to satisfy Mexico's demand for energy. According to a Petroleos Mexicanos official, Los Ramones and other pipelines could lead to a tripling of U.S. gas imports to Mexico.

With global natural gas demand expected to grow substantially over the next few years, Chesapeake Energy, as the nation's second-largest gas producer, stands to benefit tremendously. Though the company has allocated the majority of its capital this year toward drilling in liquids-rich plays, natural gas still makes up more than three-quarters of the company's production mix. Will the company be able to ramp up oil production and survive until natural gas prices finally recover? Or will it languish under the weight of its heavy debt load? To answer that question and to learn more about Chesapeake and its enormous potential, you're invited to check out The Motley Fool's brand-new premium report on the company. Simply click here now to access your copy, and, as a bonus, you'll receive a full year of key updates and expert guidance as news continues to develop.

Read/Post Comments (0) | Recommend This Article (16)

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.

Be the first one to comment on this article.

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: 2453140, ~/Articles/ArticleHandler.aspx, 9/24/2016 8:51:25 PM

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 23 hours ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

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

9/23/2016 4:00 PM
CHK $6.63 Down -0.24 -3.49%
Chesapeake Energy CAPS Rating: ***
LNG $43.72 Down -0.77 -1.73%
Cheniere Energy CAPS Rating: ***