Asian countries pay top dollar for liquefied natural gas or LNG. Growing LNG demand for power generation in Japan for example, suggests prices will stay high. Several companies want a share of this Asian market. Cheniere looks like it will be the first in the Continental U.S. with an operational export terminal, but will being first be enough to fend off competition?
First on the block with a license
For U.S. companies, Cheniere Energy (LNG -0.97%) may look like the obvious leader in the race to capture the Asian natural gas market. Its Sabine Pass export/import terminal was first in the lower 48 states to win approval for export to countries without a fair trade agreement with the U.S. This terminal should commence operations in late 2015, soon after the Panama Canal expansion opens for business. In 2018, a second export terminal in Corpus Christi should start its operations.
Cheniere closed contracts with seven foreign companies to supply natural gas for 20 years. Terms of these contracts should guarantee substantial revenues for Cheniere, but only when exports begin. Keep in mind only two export trains at Sabine Pass will be online in late 2015/early 2016. Two additional permitted trains will come online a year later and two more trains have yet to receive permits. The latest LNG contract is for the Corpus Christi terminal.
For the past 12 months, Cheniere reported $278 million in revenues. Expenses ate that up and left the company with a negative cash flow. It's been that way for a while. Despite this, the stock climbed from $16/share to over $44/share over the past year. The big hope is this revenue and issuance of debt will carry the company until its Sabine Pass terminal comes online. The combination of being the first up and the Panama Canal expansion in 2015 should put Cheniere in front of competitors.
Another American exporter
One domestic challenger to Cheniere's export plans is Dominion Resources (D 0.08%). This East Coast utility received approval to export natural gas from its Cove Point terminal. It must be pointed out that Dominion's natural gas export operations currently will be spun off as a master limited partnership along with its interests in natural gas midstream assets called Blue Racer. These assets transport and process natural gas from the Utica Shale play. This export facility should commence operations in 2017 with the Asian market in its crosshairs.
Unlike Cheniere, Dominion generates revenues from a variety of other sources. Admittedly, these are regulated and unregulated utilities but at least there's a positive cash flow. Not to mention a dividend that has slowly grown over the years and positive earnings that topped guidance for the third quarter of 2013.
The Cove Point terminal resembles Sabine Pass in that it was originally an import terminal until the U.S. shale gas boom stifled gas imports. Dominion should begin renovating the terminal for exports next spring with the first exports sailing in 2017. So Dominion will be roughly a year and a half behind Cheniere. Similar to Cheniere, two customers already have committed to buying Dominion's exports.
Up north and down under
Perhaps the biggest threat to Cheniere and Dominion is Chevron (CVX 0.57%). Chevron plans two major LNG export terminals to feed the Asian market: one in Kitimat, Canada and the Wheatstone export terminal in Ashburton North, Australia. Both facilities boast geographic advantages over Cheniere's Sabine Pass and Dominion's Cove Point. Chevron hopes export operations from Wheatstone will begin in 2016. The company made no mention of a projected start date for its Kitimat terminal. Chevron owns a 50% stake in the Kitimat terminal with Apache Corporation owning the other 50%. Apache also owns a stake in the Wheatstone terminal.
One advantage Chevron offers investors is its LNG export experience. The company began shipping LNG from its Angola terminal this past summer, and China was one of the destinations. The project suffered 18 months of delays before finally coming online. In the process, Chevron likely learned a thing or two about getting an LNG terminal up and running. Presumably, its Wheatstone terminal is progressing smoother.
Final Foolish thoughts
At first blush, Cheniere looks to have a significant timing advantage over others regarding natural gas exports to Asia. This window of opportunity may be short. Japanese LNG shipping companies are adding to their fleets and can go wherever they find the best value. China plans on starting a floating natural gas terminal off the coast of Tianjin this month.
Australia and Russia look to add export capacity. Many of these projects should come online in 2016-2018, about the time Cheniere's first exports should begin. With its size, extensive operations in Asia, LNG experience and focus on growing its LNG business, Chevron looks tough to beat in the LNG market. While Cheniere may be first to export to Asia, in the end, Chevron may dominate the Asian LNG market.
