Is the Most Expensive Policy Since Obamacare Gaining Momentum?

While the pros, cons, and costs of Obamacare have received significant press over the last several months, the impact of the U.S. policy on natural gas exports could have an even more profound impact on the costs of day-to-day life than the health-care law. Goldman Sachs recently said that the conditional approval the U.S. Department of Energy granted to the Freeport LNG terminal in Texas is significant evidence that the push to allow the export of liquefied natural gas is gaining momentum. If the U.S. begins to export large quantities of LNG, while the price would reach global equilibrium -- a benefit to natural gas companies -- the push to shift to LNG as a primary energy source in the U.S. might be in jeopardy.

The significance of Texas
The Texas location is the second such terminal to receive conditional approval and would bring liquefaction capacity near the demanded capacity, according to Goldman's Samantha Dart: "These recent developments support our view that at least 6.8 billion cubic feet a day of liquefaction of capacity will be built in the U.S." Dart believes that demand capacity is roughly 7.7 billion cubic feet per day.

The Texas installation is a venture involving ConocoPhillips, Dow Chemical (NYSE: DOW  ) and Osaka Gas among others. The Dow ownership might come as a surprise given its stance against unchecked LNG exports, but Dow made its original investment when the facility was strictly operated as an import terminal. Dow remains absent in the terminal’s daily operations. The company is an anchor member of America's Energy Independence, a powerful lobby that opposes export. The group argues that by keeping the abundance of LNG in the U.S., American companies can benefit from low prices to gain a critical advantage. This position doesn't seem to stand as an obstacle for Dow in profiting from a loosening in U.S. policy.

Investment implications
In May 2011, Cheniere Energy (NYSEMKT: LNG  ) received conditional approval for its Sabine Pass LNG Terminal in Louisiana. The gathering momentum and shifting in government sentiment should be a positive catalyst for the stock as well, particularly if permanent approval is granted. Dow and Conoco would each benefit as well, as would Chesapeake Energy (NYSE: CHK  ) , the largest natural gas producer in the United States. Chesapeake has suffered recently as a result of the supply glut from shale operations. If prices rise significantly, each of these companies is sure to benefit.

The cost to your bottom line
Since the shale boom began, Clean Energy Fuels (NASDAQ: CLNE  ) has been among the companies championing clean energy solutions. In the case of Clean Energy Fuels, the company is attempting to build what it calls America's Natural Gas Highway. The initiative is designed to place LNG filling stations across the country on major trucking routes, thereby allowing more and more freight to move by LNG-powered truck. Railroads are considering similar options, and early talk of an LNG passenger vehicle has begun.

If the price of natural gas spikes, the economic viability of all of these projects will probably make them impossible to pursue seriously. This is not a simple matter of a failure for the environmental lobby; it will cost consumers in a variety of ways. If goods cost more to ship, the price increase will probably be passed along. In addition, the technological advances that may be lost are impossible to measure. Ultimately, the management of natural gas exporting is critical to the future of all consumers and should not be overlooked.

When thinking about natural gas policy, it's important to remember that the movement toward alternative energy is gaining momentum. One potential opportunity in this field is Clean Energy Fuels, which focuses its natural gas efforts primarily on trucking and fleets. It's poised to make a big impact on an essential industry. Learn everything you need to know about Clean Energy Fuels in The Motley Fool's premium research report on the company. Just click here now to claim your copy today.

Editor's note: A previous version of this article did not clearly state the relationship between Dow Chemical and Freeport LNG. The Motley Fool regrets the error.


Read/Post Comments (15) | 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 May 26, 2013, at 10:47 AM, rickybaby103 wrote:

    Listen I have been investing and following the natural gas industry in this country for years. Every year I hear how natural gas is the future of energy in the US. Well after watching energy companies continue to find new ways of finding it, harvesting it, and storing it, I beginning to think it is the future energy and ALWAYS will be. Just think what you are asking of companies like Chesapeake. Continue to produce as much as you can, keep prices down to historic lows and wait until it catches on in the United States. That is if you are still in business after years of selling it for less than it cost to take out of the ground. Get serious!!! Our government has subsidized ever stupid alternative energy project after another. Have they done that for natural gas, no. Have they provided incentives for the build out of stations to pump natural gas, no. have they done anything to encourage its consumption, no. Exporting gas overseas where profits are 4 to 5 times what they can get here only makes good business sense. It will create good paying jobs, and ease the balance of trade problem. I think companies will still make the investment toward use of natural gas and when they do these companies will sell it to them. Will its price be where it is now, no. Will it still be an outstanding alternative, yes. Either way the price will go up.

  • Report this Comment On May 26, 2013, at 11:00 AM, seattle1115 wrote:

    This was a fairly interesting article, but it had nothing to do with the headline and vice-versa.

  • Report this Comment On May 26, 2013, at 11:35 AM, freedomwriter wrote:

    Exporting of energy, like jobs, will bring this country down to third world status.

    It would be nice if people like rickybaby would think, what this companies are asking of America and it's people instead of worshiping the almighty profit.

    The example of Chesapeake is pretty poor if you are trying to argue these LNG companies struggle.

  • Report this Comment On May 26, 2013, at 12:25 PM, Kingfisher65 wrote:

    Rickbaby, The ME,ME,ME, attitude that you and so many others have will eventually destroy this country, exporting energy will only increase the financial burdons on 98% of the population.

    Do some research on what happend in Australia when they began exporting Natural gas, Their citizens now pay some of the highest electric bills on the planet.

    We have an estimated 105 years worth natural gas under our own feet, with that we could get into a condition where we would need nothing from the Middle East.

    So the average American better prepare for their electric bill to increase 3-4 fold.

  • Report this Comment On May 26, 2013, at 1:19 PM, ddcmall wrote:

    Look. There are always trade offs. Yes the country will be loosing a valuable domestic source of energy if gas producers export it all to China. And yes that will push up the price to US consumers. But at least we will be getting permanently poisoned ground water that we can never drink during times of coming drought. That is a good deal - isn't it?

  • Report this Comment On May 26, 2013, at 1:50 PM, Titan66 wrote:

    The Most Expensive Policy is the U$ Empire of military bases.

    900 bases in over 130 countries doesn't come cheap.

  • Report this Comment On May 26, 2013, at 2:40 PM, justintayler wrote:

    While I am just a schmuck in these matters, why would we Export any of our natural resources, Should we not be trying to use what we have here while the private sector invests on building our ability to distribute and make LNG an easily obtained every day product as gas it now As one comment suggested we had about 100 years of this stuff, would that not give us time to actually develop renewable energy? I know most renewable energy is not ready for practical use It will be. I do not see the practical side of selling off the limited supply of what we have here to make money so we can spend that money overseas to import it back again. I also know its is all just about greed in the end

  • Report this Comment On May 26, 2013, at 2:57 PM, toomuchgas wrote:

    The natural gas belongs to the companies that produce it not to the US government or people. Companies should get the best price they can for their shareholders. By the way aren't we trying to get off of fossil fuel anyway and a higher price would make alternatives more practical.

  • Report this Comment On May 26, 2013, at 3:18 PM, agwisreal wrote:

    The US is running a trade deficit. Sooner or later, that has to adversely affect the value of the dollar. Exporting natural gas may push up natgas prices here at home, but indirectly it will hold down the prices of all imports.

    Trade barriers are almost always a bad idea. They inevitably hurt the world economy as a whole, and most of the time, they hurt the nation that imposes them. It's an old principle: karma.

  • Report this Comment On May 26, 2013, at 3:57 PM, Sully9173 wrote:

    Can Pres. Obama do anything right ?

    If we burn oil it's wrong ! If we use natural Gas it's wrong ! If we sell this gas, again it is wrong !

    If we Tax the sales and try to get industry to assist in balancing the budget, it's wrong.

    If we drill for it it is Wrong and if we don't drill it's wrong.

    There has to be something he and we can do that is right.

    Thanks fopr at least reading this and give it a thought. Does American Industry owe any part of its existence to the Nation?

  • Report this Comment On May 26, 2013, at 5:59 PM, fpl1954 wrote:

    This writer is not very clever. First of all the McCain health care plan, which is being called "Obamacare" isn't nearly as good as single payer, but it's not all that bad, which is why McCain proposed it and Obama backed it. However, with gas prices we have two choices.

    Choice 1: Export a lot of gas and watch the gas prices rise.

    Choice 2: Don't export gas and watch the gas prices rise.

    The bottom line is oil companies can't sell gas below cost. Either we export and keep drilling, or don't export and stop drilling. Exporting creates many more jobs than shutting down drilling, ergo it's the best choice.

  • Report this Comment On May 26, 2013, at 6:07 PM, fpl1954 wrote:

    RickyBaby, you are incorrect. Natural gas and oil drilling are heavily subsidized, far more than alternative energy. I'm not saying I disagree with the subsidy, in fact the high risk drilling that discovered this gas bonanza would never have happened without the subsidies. However, let's remember that gas drilling is very heavily subsidized. It is subsidized the right way. Bill Clinton pushed this through, anyone drilling can deduct 100% of their costs before they pay any taxes on production. This method of subsidy ensures the availability of funds to drill difficult areas. If nothing is spent, there is no deduction, so it's a work-incentive.

  • Report this Comment On May 27, 2013, at 12:58 PM, kthor wrote:

    @ rickybaby103

    "Our government has subsidized ever stupid alternative energy project after another."

    you think that's the only stupid project they subsidized? plus Alternative energy project is the future, or do you think nat gas will last 10k years?

  • Report this Comment On May 28, 2013, at 12:25 PM, bcbix001 wrote:

    Wow, lots of thoughts here. Sudden natural gas supply increase has caused booms in the explore / produce areas....but explore has already slowed due to short term glut. Many companies have announced expansion plans and are in full build mode to get them online but a major new cracker or such takes years to build, so does a major pipeline or LNG terminal. Everyone is expecting to have long term access to the current glut based pricing but knows it won't happen....which are the higher value applications long term....make downstream products here, supply energy here, ship overseas for manufacturing feedstock or energy? We are not alone in discovering massive shale oil/gas deposits and recovering it, just in the lead. Other fields have been found and will be developed over time. Even more massive gas/hydrate deposits have been found and although economical recovery technology does not exist, development efforts are underway and if natural gas prices went high long term, these sources may be tapped to limit how high the price would go.

    Alternative energy, especially solar and battery based storage has a tremendous amount of research going on. Too many companies invested too much in silicon based solar and the glut that resulted has driven prices so low that many of these companies are going out of business. With time, a capacity / demand balance may emerge, but there so many much more promising ways to PV solar that are 5-15 years from commercialization that given 100 years of gas supply, we will likely not run out before solar becomes less expensive than nat gas. Energy was a stable industry but now, it is very unstable and many different views exist of how it will work out. My guess is that the majority of prognosticators will get it wrong but a few will have it right, the issue is how to pick the good from the bad now, or even which ones to encourage over the long haul (10-30 years). There are huge amounts of money to be made in energy but there will also be big losers and how government regulates and favors certain parts of the industry will shift things around.

  • Report this Comment On May 28, 2013, at 9:44 PM, danehowell wrote:

    "The cost to your bottom line..." section is 100% WRONG...

    Only 20% of the final LNG / CNG fuel retail gas price is raw nat gas commodity.

    For example, nat gas could double tomorrow from $4 to $8 and price per gallon (diesel) equivalent that currently costs $2.20 would only rise to $2.65 a gallon.

    On the other hand if OIL (wti) doubles tomorrow from 95 to 190, price per gallon gasoline would go from $3.50 to $5.62 (65% raw commodity impact).

    Hence, LNG/CNG as a transportation fuel is the most stable and sticky tranny fuel we've seen to date. Once adoption takes hold, it's game on for NGVs...

Add your comment.

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: 2453383, ~/Articles/ArticleHandler.aspx, 8/28/2014 3:12:03 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...


Advertisement