Saturday, March 10, 2012



The news has been abuzz of late with the nearly exponential increase in domestic natural gas reserves in the United States over the last five or ten years. How much gas we have, in meaningful measures, is debatable; the conventional measure seems to be in “years supply,” but that number is heavily influenced by the uses to which we put our treasure trove of gas. When we hear, as we often do, that we have a 100 or more year supply of gas, the underlying assumption is that we will use the gas in the applications of today. To the extent that we use more gas to fuel power plants or, more tantalizingly, as transportation fuel, the years supply number will obviously go down, unless we find more gas, which seems likely. In any event, I digress; we have a lot of gas and a lot more of it than we thought we did only a few years ago. The best statistic to cite as evidence of this is the nearly 10 year low price of gas.

There is a move afoot to take legislative and/or regulatory action to keep this gas in the United States. This curious movement is being led by and even odder set of bedfellows, including

--the petrochemical industry, which would like to keep its feedstock cheap,

--environmentalists, who are concerned about the environmental impacts of intensifying exploration, extraction, especially by means of fracking, and delivery of gas, and

--those who think it is somehow patriotic to continue to run huge trade deficits and have the government tell people what to do with the fruits of their labor and investments.

So far, this movement has not gained much traction and probably won’t; even here in the land of The Khardashians, Teen Moms, Lady Gaga, and Two Men and a Boy (or whatever that affront to good taste is called), common sense still prevails in the marketplace. And think about it for a minute; even those, like the petrochemical industry and just about all of us, as users of gas, who favor lower gas prices, those who naively shout about “energy independence,” and those concerned with the environment should be encouraging export of gas. Why? If gas stays as cheap as it is, exploration and production (“E&P”) activity will fall off sharply, resulting in both higher prices and lower supplies of domestically produced, clean burning gas. We simply have to export gas to avoid a production stifling glut; again, common sense will, or at least should, prevail here.

Exporting gas, however, is not as easy as exporting oil or liquid petroleum products. Natural gas is, after all, a gas at prevailing temperatures. To export it, one must liquefy it by chilling it to very low temperatures. Since we have used just about all of our gas domestically and didn’t, until recently, foresee producing exportable quantities of gas, we have only one liquefied natural gas (“LNG”) facility in the United States. It is located in Kenai, Alaska, exports only to Japan (but could export anywhere, one supposes, but most efficiently to anywhere in Asia where, presumably, the demand would be greatest), and is 43 years old. So we need more LNG facilities in order to deal with our glut of gas and improve our trade picture by exporting gas. Therefore, an investment in LNG facilities in the U.S. seems to be nearly what was once called a lead pipe cinch.

Unfortunately, it is difficult for individuals to invest directly in LNG facilities. But it would seem that investing in companies that build such facilities, concerns that manufacture the materials used in such facilities, and firms that will own and/or operate such facilities would be a good way to play this seemingly obvious trend. Not wanting to recommend individual stocks, and not being as attuned to the industry as I was many years ago, I am not going to tout any such companies. But it would seem that one interested in using my (far more than a) hunch that LNG facilities will be a terrific investments in the years to come in order to make a few spondulicks should be able to find, alone or with help, companies that will themselves cash in on the soon to be burgeoning business of liquefying and exporting natural gas.

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