U.S. Companies Eye LNG Export Market As Prices Slide

The U.S. government may soon decide on the request from Cheniere Energy (NYSE:LNG) to build an LNG export terminal that allows the company to liquefy natural gas and export to international markets, where prices are much higher than in America. ^[1] Export of natural gas could allow companies to take advantage of higher gas prices in Asian and European markets and ease the supply glut in the U.S. that is driving prices down. Presently, the Energy Department has only provided Cheniere with a 20-year licence to export liquefied gas and put on hold applications from other companies for similar grants. Allowing LNG exports from the U.S. could boost the earnings from gas sales for companies such as Anadarko Corp. (NYSE:APC) and ConocoPhillips (NYSE:COP).

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Export market

Low gas prices in the American market are sending producers scrambling to find new customers for their products. Armed with a licence to export LNG, Cheniere is looking to spend $10 billion to build an export facility in Louisiana to begin shipping liquefied gas to markets such as Japan and Spain, where gas prices are much higher than in the U.S. Such a move could also ease the oversupply in the U.S. market, increasing domestic prices from their present lows. The move to export gas from the country could push prices to as high as $9 /Million British thermal units (MBtu), according to some estimates. High gas prices can push Anadarko’s earnings up over the coming years.

Government regulations

While companies are eager to explore export options, the Energy Department is weary that high gas prices in the U.S. could be unpopular among local actors, who use natural gas as an input. It is expected that the Energy Department will limit the number of export permits it provides to gas producers in the U.S. Analysts expect that companies can earn maximum profits from selling gas to international projects before the massive LNG projects on the coast of Australia come into operation by 2018, lowering international prices. Cheniere hopes to begin exporting from its Louisiana facility by 2015-16.

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1. Cheniere Energy awaits U.S. approval of LNG plant, Bloomberg reports, Yahoo Finance, April 13, 2012 [↩]