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US Gives Green Signal to the Natural Gas Export
Posted by: Black Iguana (IP Logged)
Date: October 5, 2013 07:19PM
U.S. - the world’s largest consumer of energy- faced an unlikely situation quite recently. It was in April last year that the natural gas prices hit an all time low at under $2 per million British thermal credits. Many believed this to be an immutable and uncomfortable reality. Though this was only a partial reality, Shares of natural gas engine designer- Westport Innovation (WPRT) nearly doubled in four months as did clean energy fuels (CLNE), a company that builds refueling stations. The NAT GAS Act, passed by the congress, was aimed at promoting the usage of cleaner fuels. It provided subsidies to vehicles which used alternative fuels rather than going the conventional way.
The Obama administration laid stress on the fact that it would always be beneficial to use the clean fuels produced within the nation’s boundaries. To further the initiative he announced an investment of $1 billion in the gas infrastructure. All this was way back in April 2012. Now, coming to the present scenario, the gas pieces have doubled than what they originally were which now puts them at $4/mmBtu price tag. The congress is nowhere in the scene now amending bills that would encourage the use of natural gas vehicles. This had ramifications in the stock market as the stocks, as those of Westport and Clean Energy, that were peaking have now fallen down to almost half their value.
What has the analysis revealed?
Priced at $2/mmBtu, the producers of natural gas found it unsustainable for production and act down its production. This resulted in the rising prices of gas which finally moved to around $4mmBtu.
Though, the department of Energy had approved a fourth liquefied natural gas terminal to export to other countries, it is doubted by the market experts whether U.S. would still be the chief exporter of natural gas in the coming years, even when the prices are cheaper at home than what it costs overseas. For the record, the Maryland based Cove Point Facility (D), was approved by the government to export upto 770 mm cubic feet per day of natural gas to nations that do not have a free-trade agreement with America.
While the fuel stocks have tumbled down, the exporters of natural gas have been profiting from the rise in the prices. This is because $4 is still lower than the prices in Europe and Asia.
Cheniere Energy (LNG) has been seeing good times since last year. The share of the company has more than doubled since last spring. The company is also making a head way on converting the Sabine Pass LNG terminal to outfit it for exports.
Scope for the market: [size=13px; ] [/size]
The experts are of the view that the natural gas export market in the U.S., which is still in its infancy, will catch up in due course as the idea of shipping abroad hasn’t gone down too well with different folks. Even then, it is widely believed that the Dominion’s export terminal might just change this view.
With the prevailing low prices, the margin for fuel companies has dwindled. The low prices are favoring exports and the gas prices are believed to rise up once exports with Cheniere kicks off. The Government has allowed 6.37 million cubic feet of LNG to be exported daily. This accounts for about 10% of the U.S. gas production.
The government in order to promote the usage of cleaner and greener fuels have cracked down on coal-fired power plants and encouraging a shift towards an alternative that is cheaper also. The Enviornmental Protection Agency has devised law that force all the coal plants to install carbon-capturing technology which is very costly thus forcing them to shift to alternative fuels such as natural gas which is relatively cheaper.
The natural gas has found place in the gas tanks of heavy - duty trucks. The fuel is 20% cheaper which counts as one of the advantages. Even then, the demand for natural gas has risen for which already use it but for the long haul ones there still is a long way to go as this is where people consider mileage and hence they rely on diesel and gasoline. At present, there are only 1000 natural gas filling stations compared to 120,000 for the traditional fuels.
To Conclude: [size=13px; ] [/size]
The push to export natural gas is going to benefit middle scale energy outfits that deal with shale gas. But the experts suggest that the construction companies which help in building export terminals would be benefited likely.
Investment in this sector is going to grow in future. This is because of a variety of factors. Firstly, these stocks are less risky than the others and hence are less likely to crash. Secondly, the growth in this sector would cause an effective increase in returns so much so that it would far exceed the expectations of many investors. With the discovery of shale gas and the efforts of the government the natural gas sector in the US is deemed to out perform diesel and gasoline.
Stocks Discussed: WPRT, CLNE, D, LNG,