Analysis: Why US will allow more LNG exports

Companies are eager to export cheap US natural gas, but only Cheniere Energy has an Energy Department permit to do so. The Obama administration is likely to issue more permits. 

Issei Kato/Reuters/File
A vessel carrying liquefied natural gas (LNG) sails at Tokyo Bay, offshore of Yokosuka, south of Tokyo, in October. The huge price spread between cheap US gas and Asian LNG imports offers companies a potential bonanza, if they can get US permits to export LNG.

The Department of Energy is required to give permits to export natural gas. A long legislative history in which gas was treated as a special commodity worthy of interstate regulation has left a strong regulatory mark.
Companies are pressing forward aggressively with exports of natural gas because there is a vast spread between domestic prices of gas and global prices.

The Federal Energy Regulatory Commission estimates that the December 2012 landed price (in million Btus throughout this article) for liquefied natural gas (LNG) will be $10.11 in the United Kingdom, $9.78 in Belgium (for the European market), $11.55 in India, $13.70 in China, and $14.10 in both South Korea and Japan. Meanwhile, the Henry Hub spot price (the US benchmark) is currently traded at $3.34 – the highest point for a year in which it traded below $2 for almost a month.

That spread between domestic prices and international prices is a clear arbitrage opportunity. For this to be a long-term benefit, however, there are still some hurdles that must be passed. It takes a significant investment of infrastructure and energy to export gas, unlike commodities such as oil. The process of liquefying gas and transporting it adds costs – estimates range between $4 and $6 per million Btus. This means that the $9 spread for exports to Asia makes sense, but the $7 spread for exports to Europe is a riskier bet. 

In addition, as utilities scarred by long experience will tell you, natural gas is a notoriously volatile commodity, and long-term predictions have seldom held true. Nevertheless, most analysts now say that the shale gas revolution has ensured that the US now holds over a century worth of cheap natural gas.  
The DOE is currently in a holding pattern on these export permits, awaiting the results of a study on what gas exports will do to the domestic natural gas market. Currently, only Cheniere Energy's (NYSEAMEX:LNG) application to export LNG from a terminal at Sabine Pass in Louisiana has been approved. There are about 15 total other permit applications outstanding. 

Some stock analysts have said that Cheniere is a clear buy after Obama's election because his administration is now likely to slow or stop the process for issuing permits on exports of natural gas. As the sole current holder of a permit to export, the company would be in the driver's seat to earn outsized profits from exports.

But that view ignores the fact that this administration has been remarkably pro-gas since the very beginning of the shale gas boom. The State Department has been busy trying to promote fracking and horizontal drilling technology abroad, while the Department of Interior and the White House have taken credit for the shale boom. 

In fact, the proposed federal regulations on fracking are a case of the government trying to protect the industry from itself. If a major environmental case turned against fracking, there is a possibility that new, heavy-handed regulation could kill the goose that is laying the golden eggs. In my view, this administration wants to protect the goose; the permits will be issued.

– This article is a modified version of a story in Energy Trends Insider, a free subscriber-only newsletter that identifies and analyzes financial trends in the energy sector. It's published by Consumer Energy Report 

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to

QR Code to Analysis: Why US will allow more LNG exports
Read this article in
QR Code to Subscription page
Start your subscription today