Natural gas is cheap in the United States because supply has outstripped demand. Natural gas isn't cheap in other countries, costing "four to five times that of the U.S." according to coal miner Peabody Energy (NYSE:BTU). That's why some companies are clamoring to export natural gas.
Peabody likes high natural gas prices in foreign markets because it increases the use of coal. For example, China is looking to coal gasification to reduce pollution instead of a wholesale switch to natural gas. Although such coal techniques are being used in the United States, low domestic gas prices have materially altered the energy landscape here.
That's why natural gas power plants are displacing coal, much to Peabody's chagrin. However, the low price is also creating new markets that simply weren't there before. In addition to the electricity industry, transportation is refocusing around natural gas, too. And what was once a largely domestic industry is working hard to become global.
The problem natural gas faces is a lack of infrastructure. Companies like Clean Energy Fuels (NASDAQ:CLNE) are looking to change that on the transportation front, while Cheniere Energy Partners (NYSEMKT:CQP) is working to get U.S. natural gas into international waters.
While Clean Energy Fuels is trying to serve the U.S. transportation market, the natural gas facility being built by Cheniere was originally conceived in a world where natural gas was to be imported into the United States. With U.S. natural gas now trading near historic lows, the company has had to shift gears -- and face questions about the benefit of exporting natural gas.
Although Cheniere's efforts to turn natural gas into an exported commodity may limit the long-term benefit of what some have called a U.S. energy renaissance, it has received government approval. And even though Cheniere is still losing money as it completes its Sabine Pass terminal, it already has customers lined up.
Some competing projects count major natural gas drillers as owners or partners, giving those export facilities anchor customers. However, strings are often attached to such partnerships that could complicate deals with other potential exporters. As a free agent, Cheniere doesn't face that issue. And, as an early mover, Cheniere is set to benefit from pent up demand for cheap U.S. natural gas.
Getting U.S. natural gas into foreign markets will be good business while prices remain low. However, as more gas goes overseas and is used in additional ways domestically, prices could start to rise. That would be great news for coal miner Peabody, which would likely see increased coal use, and it would help out drillers who would earn more. But what would higher prices do to the domestic economy and natural gas adoption?
For example, Clean Energy's efforts to get fleet vehicles switched to natural gas could slow if the cost benefit diminishes. And those that have already made the switch, like electric utilities and trash haulers, would see costs increase—extra expenses that would eventually get passed on to customers. That's clearly not good. Environmentally, if more coal is burned and fewer natural gas powered vehicles hit the roads, the U.S. carbon footprint worsens, too.
There's no easy answer. But one thing is clear, the U.S. government is setting up a select group of companies to be natural gas exporters, and that means investors can get in on the ground floor of an emerging industry with Cheniere. Just be certain to keep a close eye on the impact exports have on domestic natural gas prices.