1 Way To Ensure You Win The LNG Export Race

There's a rush to get LNG export terminals up and running. Here's one company set to win the race by helping others compete.

Jan 27, 2014 at 11:16AM

The United States is unique in the world today. Not for all the obvious reasons, but because domestic natural gas is ultra cheap compared to what it costs around the world. And taking advantage of that price discrepancy could be big business, which is why so many companies are looking to export U.S. natural gas—but the real winner could be midstream puppet master Kinder Morgan (NYSE:KMI).

More gas, less price
The combination of hydraulic fracturing and horizontal drilling has upended the energy business in the United States, materially increasing the supply of both oil and natural gas. While oil, which is largely a global business, has held up relatively well, natural gas prices cratered in this country because the United States really isn't a big global player in natural gas.

That's caused all sorts of problems for companies in the space. For example, in hindsight, ExxonMobil (NYSE:XOM) overpaid for gas specialist XTO Energy when gas prices were much higher. And Cheniere Energy's (NYSEMKT:LNG) plans to build a liquified natural gas (LNG) import facility had to quickly change direction when it became obvious that exporting was suddenly the more likely need.

Getting it on the water
In fact, Cheniere's quick direction change has opened up a huge opportunity for the company, which is well along the way to completing one of the first operating LNG export hubs. Investing in this first mover is one way to get exposure to this burgeoning market. 

That said, Cheniere's Sabine Pass terminal isn't the only one on the drawing board. The Freeport terminal is also well along and Exxon, BP (NYSE:BP), ConocoPhillips, and TransCanada (NYSE:TRP) just agreed to sell a 25% interest in a facility they are planning to build in Alaska to the state of Alaska.

So there are lots of players looking to take advantage of the price differential between U.S. natural gas and foreign natural gas. There's one company, however, that looks like it will be involved in many of the existing and proposed projects—Kinder Morgan. Indeed, this company specializes in getting oil and natural gas from where it's drilled to where it's used. That includes putting natural gas on a boat to send overseas.

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Puppet master
Kinder Morgan founder and CEO Richard Kinder boasted on the company's quarterly conference call that "...we have as many miles of pipeline or more than anybody else, and the ability to connect all kinds of sources of supply and get it to these LNG facilities. And in the long run, that may be the greatest opportunity for the Kinder Morgan family of companies." It's worth noting that Kinder is willing to put his money where his mouth is, buying "...over 800,000 shares in December alone."

And, if you are looking to take a broader investment approach to LNG export, you should buy Kinder Morgan—not its affiliated companies Kinder Morgan Energy Partners (NYSE:KMP) or El Paso Pipeline Partners (NYSE:EPB). Essentially, Kinder Morgan controls these other two entities and benefits from their success.

Both Kinder Morgan Energy Partners and El Paso Pipeline have different projects that will benefit from LNG export. That's great for each of these partnerships, but it limits the diversification you can achieve by buying just one of them. And what happens if the project that Kinder Morgan Energy Partners or El Paso Pipeline is counting on falls through?

That's why Kinder Morgan, which indirectly has its fingers in several projects through its control of both Kinder Morgan Energy Partners and El Paso Pipeline, is the best one-stop shop. If you think LNG export is going to be huge, but don't know if Exxon, Cheniere, or some other player will be a big winner, take a look at Kinder Morgan.

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Reuben Brewer owns shares of Kinder Morgan Energy Partners. The Motley Fool recommends El Paso Pipeline Partners LP and Kinder Morgan. The Motley Fool owns shares of Kinder Morgan. 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.

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