When investors think of what’s hot in the business of U.S. exports, attention is usually focused on finished goods, namely software from dozens of cutting edge companies based in Silicon Valley, CA, Redlands, WA and Cambridge, MA.
And why not? America has led in technological innovation decade after decade, staying way out front in almost every category of the explosive growth in cloud computing, networking and mobile communications, and usually stealing the headlines when monthly exports are reported.
But there is another export wave emerging that will generate hundreds of billions of dollars in revenue, and it just so happens to be in the energy sector. With the dramatic decline in natural gas prices under way, the promises of huge profits in Liquefied Natural Gas, or LNG, are staggering and the timing for investors to get on board of this transformational wave couldn’t be better.
Currently, there is so much natural gas being discovered from horizontal drilling and hydraulic fracturing that the price of natural gas has been crushed to $2.10 per mcf in the latest week of trading. The cost of buying natural gas in Tokyo, Seoul and Mumbai is around $13 – $15 per mcf. Being a source of fuel that is clean, green, domestic and abundant in supply, the export of natural gas in a highly concentrated liquid form is one of the most exciting investment themes for 2012 and beyond.
Very simply, by freezing natural gas to -260 degrees below Fahrenheit, it becomes an odorless, colorless liquid that is 600 times denser than gas and can be shipped on LNG carriers to countries willing to pay top dollar for the cleaner, more efficient fuel.
Last May, the U.S. Department of Energy approved the export of LNG from the Sabine Pass LNG Terminal in Louisiana, paving the way for thousands of new construction and domestic natural gas production jobs in Louisiana, Texas, and several other states.
There is one company that owns the only terminal where the first shipments of LNG are going to be exported from the Gulf of Mexico, Cheniere Energy Partners (NYSE:CQP). Set to begin exporting LNG in 2015, the company is out front in the race to be first to market. As 100% owner and operator of the Sabine Terminal in Louisiana, CQP is in an enviable position having sold out its first phase of capacity in a string of contract wins with Britain’s BG Group, India’s GAIL, Spain’s Gas Natural Fenosa and South Korea’s KOGAS. These are 20-30 year contracts and aren’t subject of fixed pricing.
In addition to owning Cheniere Energy Partners L.P with its 7.62% yield, investors can widen their bet on the LNG theme by taking positions those shipping companies that transport LNG by sea. Shares of Teekay LNG Partners (NYSE:TGP) with its 6.40% dividend yield and Golar (NASDAQ:GLNG), sporting a 3.33% yield would be the best choices here.
Adding more sizzle to the LNG story, those companies putting in pipelines to coastal terminals are also a great fit to consider. In this case, Dominion Resources (NYSE:D) comes to mind. Not just your Grandma’s stodgy electric utility anymore, Dominion is pouring billions into offshore wind generation and LNG pipelines. What’s not to love about a high growth, multi-fuel source energy company that pays out a 4.10% dividend yield?
After posting sizzling gains at the end of 2011 and the first two months of 2012 shares of LNG related companies have undergone some consolidation that affords investors attractive entry points while being able to lock in very attractive yields. And as far as the hotly contested and polarizing debate on energy policy goes, the LNG export story is the only theme within the debate that all sides seem to be in agreement.
Now that’s a first!