Israel and the U.S. share a similar dilemma: They have lots of natural gas but can't decide the best way to handle it. Both countries have factions that either want to export as much as possible, or want to minimize exports to keep domestic prices low. Each government wants to be energy independent and natural gas, particularly in Israel, could go a long way to achieving that goal. Here are how three U.S. energy companies might be affected.
First with a license, but facing competition
It started out as a natural gas import terminal. Then hydraulic fracturing cranked up U.S. natural gas production and shut down gas imports. For Cheniere Energy (NYSEMKT:LNG), it was a case of adapt or operate an expensive inactive import terminal at Sabine Pass. So Cheniere converted the terminal to an export/import facility and was the first U.S. company in the lower 48 states to acquire a license to export natural gas to non-Free Trade Agreement countries.
For investors, Cheniere presents a dilemma. On the one hand, it is scheduled to begin exports in the fourth quarter of 2015 and has been actively lining up customers with long-term contracts. On the other hand, Cheniere has yet to produce a profit, and there's growing competition for the Asian natural gas market. The list of competitors spans the globe. Iran, if it ever has its sanctions lifted, could quickly become a major exporter and competitor.
Right now, Cheniere could look like a money pit to some investors. Its export facilities at both Sabine Pass and, more recently, Corpus Christi won't start generating revenues until 2015 and 2018 respectively. If the price of U.S. natural gas stays low, then Cheniere will enjoy a significant price advantage over other many foreign producers. If Sabine Pass starts exporting on time, it will have a jump on many competitors. If prices start to rise, this will not only lower margins, but also potentially create a backlash in the U.S. to restrict exports to keep domestic prices under control.
Biggest operator of vehicle fuel stations
One company wanting to keep natural gas prices under control is Clean Energy Fuels. Clean Energy operates natural gas fueling stations for vehicles across the U.S. and Canada.
The low price of natural gas has driven demand for both short-range vehicles (trash trucks, buses) and longer-range trucks (tractor trailers traveling on interstate highways). For example, UPS and Lowe's are expanding their use of natural gas burning vehicles. Last summer, Westport Resources rolled out an engine for long-range trucks, and demand has reportedly outstripped projections.
Compared to Cheniere, Clean Energy looks more like a company breaking out rather than a company holding on. Contracts with current customers are being renewed and expanded. Financing help for new purchases comes from GE Capital. Sales of natural gas keep climbing. As long as the price of natural gas stays low, Clean Energy looks like a winner.
Domestic politics in Israel
As mentioned before, Israel also wrestles with the natural gas export conundrum. Noble Energy (NYSE:NBL), one of the key partners in the discovery of natural gas off the Israeli coast, wanted to export natural gas to boost its revenues and realize a return on its exploration investment. It took forever, but permission to export was granted.
However, politics continue to bewilder. Israel is projected to see natural gas shortages next summer if production from its Tamar gas field isn't augmented by other fields, such as the Leviathan. Production delays abound over where to put the onshore receiving terminal and whether the joint venture between Noble and Israeli firm Delek Holdings in the Leviathan constitutes a cartel.
Meanwhile, natural gas export opportunities to Egypt and Jordan present themselves, but cannot be exploited until talking stops and decisions are made.
Fortunately for investors, Noble has plenty of other assets producing oil and natural gas. Still, it would be best for all concerned to produce natural gas from the Leviathan rather than produce hot air in Tel Aviv.
Final Foolish thoughts
Of these three, Cheniere looks most vulnerable to political whims. If natural gas becomes increasingly important as a vehicle or electric utility fuel, there will be significant pressure to restrict natural gas exports. Noble has suffered some revenue loss due to Israeli bickering, but has so many other assets its long-term health is not likely to decline. Clean Energy looks very promising. By selling to a diverse range of industries, its interests are shared by many who benefit from continued low gas prices. These industries will likely also make their case for restricting gas exports. After years of laying the groundwork, Clean Energy looks like it's about to make a buck for itself and its investors.
Robert Zimmerman has no position in any stocks mentioned. The Motley Fool recommends Clean Energy Fuels. 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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