3 Secret Winners From Natural Gas Exports

Natural gas bulls scored major points last week when the Department of Energy approved a second LNG plant for exports to countries not in a free trade agreement with the U.S. But beyond the elation of exporters and worries for domestic natural gas sellers, there's a secret sector that just might benefit from natural gas prices. Here's what you need to know.

Regulation elation
The Department of Energy announced last week that it has given the go-ahead to the $10 billion Freeport LNG project to export liquefied natural gas to countries not members of free trade agreements – an honor previously held solely by Cheniere Energy's (NYSEMKT: LNG  ) Sabine Pass Terminal.

The obvious winners here include ConocoPhillips, which owns a 50% stake in the general partner Freeport LNG-GP, as well as other energy companies like Dominion and Sempra Energy which currently have applications submitted to export their own LNG.

But basic tenets of international trade give investors one important clue for secondary winners: When demand for a product goes up with no change to supply, prices head higher.

Source: Author

In other words, opening up U.S. natural gas supplies to worldwide demand will shoot prices even higher than their recent rise.

Henry Hub Natural Gas Spot Price Chart

Henry Hub Natural Gas Spot Price data by YCharts

Traditional fuels
With prices headed higher, more traditional fuels are breathing a sigh of relief.

Exelon (NYSE: EXC  ) owns 19,000 MW of nuclear generating capacity, equivalent to 20% of the nation's total nuclear assets. Building nuclear facilities is one of the most expensive and regulated activities any corporation can conduct, but their relatively clean output and cheap ongoing operating costs make the initial investment well worth it. With natural gas prices headed higher, nuclear's cost competitiveness could make major gains.

Coal-centric TECO Energy (NYSE: TE  ) is back in business. A second Energy Information Administration report recently outlined coal's relative cost, and things are looking up again for this solid black gold. TECO uses coal for 61% of its generation capacity, and also owns and/or operates 11 Appalachian coal mines.

Unfortunately, coal's cost competitiveness might put TECO in a catch-22 conundrum. While other energy companies diversify their portfolios and invest in cleaner energies, TECO might end up riding coal's cheap costs for far too long. If the utility can use its newfound maximized margins to improve and expand its operations, it could pull through with more sustainable profits than ever before.

Ramping up renewables
Coal and nuclear might be celebrating natural gas exports, but the real winners are renewables. Until recently, production tax credits have propped up wind power, while solar has benefited from an investment tax credit program.

But over the past few months, costs have been dropping fast. A natural gas boost could mean sustainable soaring for this sustainable sector.

Solar is soaring this week after SolarCity (NASDAQ: SCTY  ) announced a $500 million financing agreement with Goldman Sachs and SunPower (NASDAQ: SPWR  ) released its 2013 guidance, complete with fatter margins and the potential for first-time positive earnings. Solar's slashing costs, while General Electric  is making major strides in wind's scale and efficiency with a new 1.7 MW wind turbine, the most powerful to date.

But technology can only improve so fast and, if the Energy Information Administration's coal and nuclear reports are any evidence, a rise in natural gas could go a long way to tipping the balance on renewables' cost advantage.

Foolish bottom line
The rules of supply and demand giveth, and they taketh away. For today, increasing natural gas demand could be its own domestic demise.

There are many winners and losers in the export debate, and the ultimate outcome on LNG is TBD. Do you think the U.S. should open its natural gas supplies internationally? Use the comments space below to add your own opinion.

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