Is it Too Late for US LNG Exports?

Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

This past May, the Department of Energy granted Freeport LNG (a private company) license to export liquefied natural gas, or LNG, to foreign countries--foreign countries that do not have a free trade agreement with the United States that is. Thus, Freeport joins Cheniere Energy (NYSEMKT: LNG) as a LNG exporter. This decision presages more export licenses to be issued to US companies. Given the foreign competition already in place, will it be too late for investors in US natural gas corporations? Not necessarily.

First with a license

Cheniere received the country’s first LNG export license. At its Sabine Pass gas port on coastal Louisiana, Cheniere, through its partial interest in Cheniere Energy Partners (NYSEMKT: CQP) owns liquefied natural gas tanks with a capacity of 17 billion cubic feet. Unfortunately, they’re empty. These tanks will be part of an export facility due to come online in 2016.

For the past three years, Cheniere posted losses. These losses also grew in magnitude during that time despite a growing list of customers paying annual fixed fees now totaling roughly $2.9 billion. Both Cheniere Energy and Cheniere Energy Partners carry significant debt. While they have signed on a growing list of clients and venture capitalists, they won’t be shipping gas until 2016. A lot can happen in three years.

Called Leviathan for a reason

Off the coast of Israel, several natural gas fields have been discovered with enough gas to make Israel an energy exporter. One field called Leviathan may hold 122 trillion cubic feet of natural gas and 1.7 billion barrels of oil. Another gas field called Tamar went from discovery to production in four years. Not to be outdone, Cyprus holds substantial natural gas fields off its southern coast. Both Israel and Cyprus aim for LNG exports and have the likes of Delek Holdings (NASDAQOTH: DGRLY) and Noble Energy (NYSE: NBL) helping them out.

When will LNG exports begin? In Israel, gas from the Tamar seems spoken for by domestic customers, but when production from other fields begins in 2016, expect exports to begin. Cyprus hopes for natural gas exports by 2020 after making its first discovery in 2011. Construction of a natural gas export facility should begin in 2016.

Delek Holdings is the Israeli energy company active in Eastern Mediterranean natural gas exploration and development. US investors can buy Delek's ADR’s. Delek US and Delek Logistics Partners , which are partially owned by Delek Group. These companies operate two refineries, logistics services and retail convenience stores in the US, and are interesting investments in their own right, but have no direct interest in the Israeli gas fields.

Noble Energy first discovered natural gas off the Israeli coast in 1998. The Leviathan represents one of the largest discoveries in Noble’s history. Noble stock gained 54% over the past year and these Mediterranean finds will only help fuel more growth. Also adding to the company’s revenues are assets in the United States, West Africa and the Gulf of Mexico. While US assets performed well in 2012, foreign plays may drive earnings in 2013. Equatorial New Guinea on the West African coast is slated to begin producing natural gas in 2013.

Out of Africa

Anadarko Petroleum Corporation (NYSE: APC) recently announced its second major natural gas find off the coast of Mozambique. In a recent presentation, Anadarko characterized these gas plays as “massive” with a minimum of 35 tcf. Anadarko set out an ambitious schedule for bringing both natural gas production and export facilities online so as not to be outdone by gas exports from Tanzania, Canada and Australia. The company believes its liquefied natural gas facility in Mozambique could be one of the world’s largest.

As an investment, Anadarko produced over $7 billion in discretionary cash flow and a 7% gain in earnings in 2012. A 28% increase in onshore oil sales drove this success. The future holds further promise as Anadarko develops not only its Mozambique natural gas plays, but its oil and gas plays off Ghana, Kenya and in the Gulf of Mexico. These operations add to the company’s stable and productive portfolio of US onshore assets.

Final Foolish Thoughts

The American Council for Capital Formation recently wrote that delays in LNG export permits may derail the economic benefits of LNG exports for the US. They’re right, but expediting the permit process may be too late. Already, some believe the US will not be a major player in LNG exports to Asia. Fortunately, US investors need not rely on Cheniere for LNG related profits. Both Noble and Anadarko have significant natural gas export potential on top of promising domestic assets. Either of these two companies will allow investors to make money in the LNG trade while the Department of Energy dithers in bureaucratic red tape.

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Robert Zimmerman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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