Japan’s Insatiable Appetite for Natural Gas Is Key to Energy Stocks’ Future

Japan needs natural gas -- a lot of it -- and Canada has it. So which companies are positioned to cash in on this opportunity?

Jan 21, 2014 at 12:29PM

There's one word that describes why companies with large natural gas reserves are a good buy right now: Japan. 

The Tokyo Electric Power Company (TEPCO) increased its purchases of liquid natural gas (LNG) by 7% in January. TEPCO, which supplies electricity to Tokyo, will buy 2.3 million tons (mt) of LNG in January. The company bought 2.2 mt of LNG in December.

TEPCO needs that natural gas after shutting down all of its nuclear reactors because of the Fukushima catastrophe. All 50 of Japan's reactors are currently shut down, and they'll probably stay shut in the face of political pressure.

Japan needs natural gas
The country is turning to natural gas to fill the void. Even Japan's Prime Minister Shinzo Abe is trying to negotiate deals to buy more natural gas from nations like Mozambique. Abe is reportedly involved in negotiations for a $20 billion deal to build natural gas export facilities there.

Japan obviously needs natural gas and is willing to pay for it. The country will need more LNG in the near future because its rate of economic growth is up and its stock market is booming. If the Japanese want the good times to continue, they're going to need natural gas.

Japan is now the world's largest importer of natural gas, and that demand is poised to grow. In addition to Mozambique, Abe was in Canada in September trying to negotiate to buy—you guessed it—more LNG.

Kitmat is the key to profiting from Japanese LNG demand
Naturally, investors will be wondering how to profit from this situation. Well, there are two publicly traded energy companies in excellent position to cash in on the Japanese LNG market right now: Chevron (NYSE:CVX) and Apache Corporation (NYSE:APA).

These two companies are partners in what is known as the Kitmat LNG Project in British Columbia. If you haven't heard of it, Kitmat is a facility for the export of LNG on Canada's Pacific Coast. Best of all, Kitmat, unlike the facilities in Mozambique, is under construction right now. When it starts pumping, Kitmat will be able to export five million mt of LNG a year.

The gas will initially come from Apache's Horn River Basin and Liard Fields in British Columbia. The Horn River Basin could contain up to 424 trillion cubic feet of natural gas. There are also plans for a pipeline to bring in even more natural gas from Alberta. The Liard Basin contains an estimated 48 tcf of natural gas.

The obvious market for the Kitmat natural gas is Japan. Kitmat is closer to Japan than Mozambique, and it is located on an ice-free deepwater harbor, which means natural gas can be shipped year-round. LNG can even be shipped from Kitmat during the winter when LNG demand is highest in Japan.

Kitmat will be first of at least four natural gas export facilities in British Columbia. The other facilities are not expected to open until after 2020. That means Chevron and Apache will have a virtual monopoly for the first few years.

U.S. gas exports on the horizon
There will eventually be some serious competition, though. Barclays Commodities research estimates that the U.S. will become a net exporter of natural gas by June 2016. That estimate is ahead of the U.S. Energy Information Agency (EIA), which estimates that the U.S. will become a gas exporter in 2018.

Obviously Japan will be one of the main markets for U.S. natural gas. All of those gas shipments will probably mean falling prices that could eat into the bottom line of companies like Apache. The Kitmat project cost $15 billion, according to Bloomberg. Oversupply leading to intense competition could make it hard for gas producers to maintain revenues.

Japan's growing demand for LNG makes both Chevron and Apache good long-term energy plays right now. As long as the Japanese economy keeps growing, so will the market for natural gas. 

Your best bet on energy
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!

 

Daniel Jennings has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers