3 Companies that Make Natural Gas Exports Possible

Natural gas is cheap in the United States and expensive overseas, this trio will make it possible for U.S. companies to charge those higher prices.

Reuben Gregg Brewer
Reuben Gregg Brewer
Apr 11, 2014 at 10:47AM
Energy, Materials, and Utilities

Exporting natural gas is something of a contentious issue in the United States. Large gas consumers want to limit exports, drillers want to take advantage of selling into markets with higher prices. That can't happen, however, without help from companies like Kinder Morgan (NYSE:KMI), Cheniere Energy Partners (NYSEMKT:CQP), and GasLog (NYSE:GLOG).

Raising a stink
U.S. natural gas consumers haven't been shy about espousing the benefit of low natural gas prices. In fact, companies as far reaching as steel mills and chemical manufacturers have teamed up to create America's Energy Advantage. This group believes in, "Supporting the natural gas advantage that has made the U.S. manufacturing sector more competitive, which has created jobs, spurred capital investment and increased exports of value-added products."

But natural gas is expensive in other markets. For example, after shutting down its nuclear reactor fleet, Japan has had to find other fuel sources and it has to import virtually all the fuel it uses. Japan's imports of liquified natural gas rose only 0.2% in 2013 but cost the country 17.5% more, year over year. Getting more U.S. gas into markets like that is clearly desirable for U.S. drillers.

Getting on board
One way to get on board of the natural gas train is to buy a driller. However, volatile natural gas prices make that a risker option than you might expect. The industry is, broadly speaking, working on cost cutting and productivity improvements to deal with the issue. And while drillers are likely to benefit more when prices do recover, commodity linked businesses are prone to large price swings.

Another option is to focus on the companies that will help move natural gas once it starts flowing overseas. And slowly but surely, approvals are being granted for natural gas exports. For example, Cheniere Energy Partners' Sabine Pass LNG terminal is likely to be the first to export the fuel to non-Free Trade Agreement countries.

Cheniere's facility is still being built, so the partnership continues to bleed red ink. However, Cheniere already has long-term customers lined up once Sabine is up and running. Without toll-taker facilities like this one, U.S. natural gas won't get exported.

(Source: Michael Scott, via Wikimedia Commons)

Natural gas, however, has to get to that port. That's where giant midstream players like Kinder Morgan come into play. Through its family of companies, Kinder controls 80,000 miles of pipelines. While that's not all natural gas, it's easily one of the largest players in the gas space.

The infrastructure build out in this country isn't over yet, so there's still plenty of room for toll-takers like Kinder to expand its web of pipes—even if natural gas never gets exported. Better yet, the shares of this giant mid-stream company have been out of favor, which could make now a good time to buy and lock in an around 7% yield.

Delivery men
Driller pull gas out of the ground, Kinder provides the pipes to get it to export facilities like the one Cheniere owns, but then what? Companies like GasLog own the ships that deliver the gas to customers in far away places like Japan.

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GasLog ended 2013 with seven ships carting natural gas around the world, with another seven on order. The company is keeping close track on gas export developments in the United States, as well as other nations like big gas importer China. GasLog plans to be ready when the U.S. starts sending its gas overseas. And it's looking into creating a limited partnership that will allow it to raise money to fund its growth.

No magic here
Getting U.S. natural gas overseas won't magically happen. However, there are key players along the way like Kinder Morgan, Cheniere, and GasLog that are well positioned to benefit because of the important roles they will play in the process. Exporting gas is a contention issue, but watch this trio because it looks increasingly likely that the U.S. will be exporting much more gas in the future.