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Political Battlefield Shifts to Sabine Pass

Natural gas plant in environmentalists' sights


Some members in Congress aren’t waiting for FERC to act. Citing U.S. Energy Information Administration data that if all seven export facilities are built, natural gas prices could rise between 9% and 32% by 2025, Rep. Edward Markey, D-Mass., recently introduced two bills to prevent shipments of LNG and prevent the approval of any new export terminals until 2025.

The fact that a variety of leading environmental groups and few key government officials have begun saber-rattling against LNG exports is sobering for investors in the sector.

Don’t Believe the Hype

Aside from the $50 million breakup fee Cheniere would owe Blackstone if the Sabine Pass expansion is canceled, shareholders in the company would be in a world of hurt. The terminal originally was built to import natural gas at a time when prices were at $15 per million BTUs and the U.S. was in the midst of a real energy crunch. Much of the firm’s recent gains have been built on the back of the export mantra.

Nonetheless, I think those gains are safe for a number of reasons. First, the main reason for the extremely low natural prices is too much supply coupled with a lack of domestic demand. The U.S. currently produces 30% more gas than it did in 2005. While power producers have been moving toward using more gas for electricity generation and several industrial sectors have begun using it as feedstock, the country still produces far more natural gas than it will ever use. Until Ford (NYSE:F) or other automakers seriously consider introducing a natural gas-powered car, you’ll see more producers continue to curtail production until wells hit a profitable level.

Secondly, those bills introduced by Markey have almost no chance passing in the Republican-controlled House. At the same time, Obama has thrown his support toward fracking and the U.S. natural gas industries. In response to the EPA’s report, the administration put out a statement saying that fracking will “lead to job creation and does not mean America will have to choose between protecting our environment and bolstering the economy.”

So where does that leave investors? Odds are Cheniere’s Sabine Pass facility will get built and we’ll see an exporting future. However, given the potential problems, shares of the firm still are a riskier bet. One hiccup could send shares back toward their lows.

For those investors who want more of a “sure thing” in playing LNG and exporting growth, both Chevron (NYSE:CVX) and Royal Dutch Shell (NYSE:RDS.A, RDS.B) and their Gorgon project might be a better bet.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.

The opinions contained in this column are solely those of the writer.

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