The Next LNG Exporter to See its Stock Pop
We’ve known for a while now that the United States would ramp up exports of liquefied natural gas (LNG).
Well, now the dominos are finally starting to fall.
It started with Cheniere Energy (LNG) – the first, and so far only, company to have its LNG export terminal approved by the Energy Department.
Dominion Resources (D) is next.
The company is currently third on the list of 21 exporters awaiting approval from the Energy Department. (It’s behind two privately owned companies, Freeport LNG and Lake Charles Exports.) And it’s made a very compelling case for itself.
Dominion is looking to convert its Cove Point terminal on the Chesapeake Bay to an LNG export facility with a daily send-out capacity of 1.8 billion cubic feet.
The company has pitched its plan to the government, saying the project would contribute about $1 billion annually in federal, state and local government revenue.
It also said an average of 750 construction workers would be employed during the three-plus years of construction. And the benefits to the energy industry as a whole would support another 14,600 jobs once exports begin.
Furthermore, pipelines connecting the Cove Point terminal to Pennsylvania’s Marcellus Shale gas field are already in place. So by giving Dominion the green light to go ahead with exports, the government could also stimulate drilling in Pennsylvania, where gas production has stagnated due to oversupply.
That – along with a recent report by NERA Economic Consulting that showed LNG exports will have a negligible impact on U.S. energy prices – should be enough to convince the Energy Department to let Dominion move forward.
After all, the company announced on Monday that it’s already found buyers for pretty much all of Cove Point’s capacity. Dominion has struck deals with a subsidiary of GAIL Ltd., India’s state-owned gas company, and Japan’s Sumitomo Corp.
Under those agreements, Dominion would collect a flat fee for transporting and processing the fuel. So it’s being paid on volume, which means natural gas prices are irrelevant.
That income would go a long way for Dominion, which is already one of the largest energy producers and transporters in the United States. Keep in mind, the company has 10,000 miles of gathering and transmission pipeline, a massive natural gas storage business and a sizeable amount of processing capacity.
An LNG export facility 60 miles south of Washington, D.C. would have to be considered its crown jewel, though. Especially with natural gas demand ratcheting up at home and abroad.
Indeed, low prices at home have convinced major power suppliers in the United States to switch over from coal. And overseas markets are anxious for the United States to start sharing, because the added supply will lower prices in Asia and Europe, where natural gas prices are markedly higher.
Natural gas prices in Europe are about $10 per cubic foot. And the price has risen as high as $20 per cubic foot in certain parts of Asia. That compares to current prices of about $4 per cubic foot in the United States.
For that reason, analysts believe the United States could be exporting as much as 100 million metric tons of LNG by 2025.
And Dominion will be at the forefront of that boom.
At the very least, the stock should enjoy a short-term surge if the government finally approves its Cove Point terminal later this year.
Remember, Cheniere stock surged more than 20% when its Sabine Pass terminal was approved in April 2012.
Dominion could easily see a similar boost, as well as enjoying enduring long-term prospects.
And “the chase” continues,