Four LNG Companies Popping Champagne Bottles
After months of anticipation, the ruling is finally in: Liquefied natural gas (LNG) exports will have a negligible impact on U.S. energy prices.
Furthermore, such exports would benefit the U.S. economy, even if they led to higher fuel costs.
So says a report conducted by NERA Economic Consulting on behalf of the U.S. Energy Department. The study was commissioned to help policymakers grappling with the question of whether we should send some of our newly-acquired natural gas bounty overseas.
The findings are crucial because they have the potential to alleviate the logjam of LNG companies waiting to be approved for export licenses.
Industry insiders expect the United States to export as much as 100 million metric tons of LNG by 2025. But so far only one company – Cheniere Energy (LNG) – has been approved to build an LNG export terminal.
Cheniere’s Louisiana terminal is scheduled to begin operations in 2015 and will ship supplies to clients such as London’s BG Group PLC (BRGYY), Barcelona’s Gas Natural Fenosa, GAIL India Ltd. (GAILF) and Korea Gas Corp.
Already, demand for Cheniere’s services is so high that the company is considering expanding the Sabine Pass terminal. The company could increase the facility’s export capacity from 18 million metric tons to 27 million.
Cheniere has also applied for permission to export LNG from another export terminal to be located in Corpus Christi. The company would like to have that facility operating by 2017.
And that’s much more likely to happen now that NERA’s report has endorsed exports.
Of course, Cheniere isn’t the only company that will benefit. The Energy Department is considering at least 15 applications from energy companies looking to build export terminals. Those 15 projects would export a combined 24 billion cubic feet of natural gas per day. That’s equal to about one-third of U.S. natural gas consumption.
So here are three other LNG companies celebrating the release of NERA’s report.
Dominion Resources (D) is one of the companies lined up waiting for an export license.
One of the nation’s largest producers and transporters of energy, Dominion aims to ship LNG from its Cove Point terminal in Maryland.
The company acquired Cove Point in 2002 and began receiving ships in the summer of 2003. Following a 2009 expansion, the facility now has a storage capacity of 14.6 billion cubic feet and a daily send-out capacity of 1.8 billion cubic feet.
Dominion has pitched its plan to the government saying the project would contribute about $1 billion in additional federal, state and local government revenue annually.
It also said an average of 750 construction workers would be employed during the three-plus years of construction. Additionally, Dominion says the benefits to the energy industry as a whole would support another 14,600 jobs once exports begin.
Such a compelling case is likely to win favor from regulators. And that could be very good news for a stock that hit a bit of a rough patch in November.
Dominion is currently trading at about $52 a share, which is right in the middle of its 52-week range. It has a P/E ratio of 25, which is a little bit higher than the industry average, but it yields about 4%.
San Diego-based Sempra Energy (SRE) rose 3% – its biggest gain in more than a year – after NERA’s report was released. The company has applied to add natural gas liquefaction and export facilities to its existing Cameron LNG terminal in Hackberry, Louisiana.
Cameron has a total LNG export capacity of 12 million metric tons per year, or about 1.7 billion cubic feet per day. The facility is expected to start delivering LNG to international markets in 2017.
Like Dominion, Sempra claims the project will boost both the local and national economy, creating nearly 3,000 direct jobs in the peak construction year and approximately 130 full-time jobs when fully operational.
The Cameron facility has already been approved to export LNG to countries with which the United States has free-trade agreements. And its application to export to non-free-trade countries, filed in December 2011, is expected to be among the first ones that will be considered early next year.
At $71 a share, Sempra stock is currently at the high-end of its 52-week range. It has a P/E of 20.22 and yields about 3.4%.
Finally, energy giant Exxon Mobil (XOM) is celebrating, as well.
Exxon became the largest natural gas producer in the country in 2010, when it took over XTO Energy. In the two years since, gas prices have fallen, but LNG exports will reverse that trend by sucking excess supply off the market.
Of course, Exxon isn’t just a natural gas producer, it’s also transforming itself into a major LNG exporter.
In fact, Exxon is partnering with Qatar Petroleum to turn a gas-import terminal near Port Arthur, Texas into an LNG export facility. The joint venture, Golden Pass Products, aims to export 740 billion cubic feet of LNG from the terminal each year.
This isn’t the first time the two have teamed up. Exxon previously spent $12 billion to help upgrade Qatar’s North Field, which was originally designed to ship LNG to the United States. However, as the U.S. came into its own supply, that output has been turned around for transport to Asia.
Qatar is now the world’s largest exporter of LNG, shipping some 76 million tons of the fuel a year.
Additionally, Exxon is building its own LNG export facility in Papua New Guinea. That project has been hampered by higher-than-expected costs, but is still on track to ship its supplies to China, Japan and Taiwan by 2014.
Exxon has said the cost overrun will be offset by higher output capacity of 6.9 million metric tons a year, up from 6.6 million tons, plus a 30% rise in the price of LNG since construction of the project began in 2009.
So clearly, Exxon has some very good expertise and connections in this industry.
At about $89 a share, Exxon has a P/E of just 9.36 and a dividend yield of 2.57%.
Bottom line: Cheniere, Dominion, Sempra and Exxon will see significant gains as they gain approval for their respective LNG export projects.
And “the chase” continues,