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Liquefied Natural Gas Powering +72% Annual
Returns |
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Published:
June 9, 2008
According to the Department of
Energy, natural gas accounts for
about 22% of total energy use in the
U.S. And up until now, the
U.S. has enjoyed relative
independence when it comes to
meeting our domestic natural gas
needs.
But that's all about to change.
Flat Supply and Growing Demand
In 2006, the U.S. was the world's
largest gas consumer by a wide
margin, burning through some 60
billion cubic feet per day. But
production totaled nearly 51 billion
cubic feet -- import dependence was
around 15% of demand.
But U.S. natural gas production is
currently flat-to-declining, much as
oil production was in the 1970s. In
2001, U.S. gas production hit a
total of 53.7 billion cubic feet per
day and has never since surpassed
that peak. The Department of Energy
and most prominent energy analysts
expect that U.S. production will, at
best, grow only slightly over the
next 25 years.
Meanwhile, gas demand is growing at
a pace that's set to far outstrip
any modest increases in production
in coming years. Just as with oil,
that trend spells rising import
dependence for the U.S. gas market.
In the past, the top source of U.S.
gas imports was Canada. Of the
roughly 9 billion cubic feet per day
of U.S. imports required in 2006,
nearly 90% was imported from Canada
via pipelines. This is a convenient
trend because Canada is
geographically close to the U.S. and
is stable politically -- it's a
reliable trading partner.
Unfortunately, Canada won't be able
to meet the growing gas consumption
trends in the U.S. Canadian gas
production has also been hitting a
wall recently, and remains roughly
flat with 2001 production levels.
Meanwhile, Canada's own consumption
of gas is growing at nearly +6% per
year -- that means less gas is
available for export to the U.S.
That raises a key question. Namely,
if Canada can't supply the U.S. with
the gas it needs, where exactly is
it going to come from?
Transportation Breakthrough
Enter a technology known as
liquefied natural gas (LNG). LNG is
not a different fuel than natural
gas; rather, its just natural gas in
liquid form. Natural gas is
comprised primarily of methane, a
colorless hydrocarbon gas. Or at
least, it's a gas at room
temperature; when cooled to -160
degrees Celsius (-260 Fahrenheit)
natural gas liquefies. Like all
gases, when methane liquefies, it
shrinks in size -- LNG takes up less
than 0.2% by volume of an equivalent
quantity of methane in gaseous form.
LNG can be loaded onto specialized
tanker ships and transported by sea
just like crude oil. Before the
advent of LNG, almost all gas was
moved by pipeline, such as between
the U.S. and Canada. But using LNG,
countries no longer are bound to
import gas only from adjacent
nations via existing pipes. It's
possible to transport gas hundreds
or even thousands of miles just as
easily.
Natural gas is not burned in liquid
form. Instead, the gas is converted
into a liquid in a facility known as
a liquefaction train; gas is
typically liquefied near the source
of production. Then once transported
to its ultimate destination, the LNG
is re-gasified and added to the
pipeline network just like any other
gas. From the consumer's standpoint,
there is no way to know if the gas
you're burning is from the hills of
Appalachia or a deepwater project in
Australia. In fact, you may already
be using natural gas transported as
LNG and not even know it.
And consider that some large and
prolific natural gas reserves are
located in fields too far from
existing pipelines to be moved by
pipeline. LNG allows producers to
efficiently exploit these fields and
transport that gas to market where
it's desperately in demand. Before
LNG, these remote gas fields would
have no real value.
Strong Future for LNG in US and
Asia
By 2015, the U.S. Department of
Energy projects that LNG will
account for a larger share of U.S.
natural gas imports than those from
Canada. And by 2030 that same agency
expects LNG imports to account for
nearly 5 trillion cubic feet per
year.
Of course, it's not just the U.S.
that's likely to see rising LNG
trade. Some countries, such as Japan
and Korea, are already major
importers of LNG. In fact, in terms
of current trade the U.S. is still a
bit player, importing just 16.6
billion cubic meters of LNG in 2006.
In 2006, Japan imported more than 81
billion cubic meters of natural gas
in LNG form, equivalent to some 96%
of total Japanese consumption in
that year. Almost all of Japan's gas
supply comes from three countries --
Malaysia, Indonesia and Australia.
And South Korea is just as dependant
on LNG technologies today. Out of
the nation's 34.2 billion cubic
meters of gas consumption in 2006,
no less than 34.1 billion cubic
meters were imported in the form of
LNG, primarily from the Middle East
and Malaysia.
But there's another even more
significant tidal wave of demand in
Asia on the horizon -- China. China
accepted its very first shipment of
LNG in 2006, a total of just 1
billion cubic meters, delivered from
Australia. But that's set to become
a much larger figure in coming years
-- by 2015, analysts estimate that
China will need to import as much as
45 billion cubic meters worth of
LNG. That would make China one of
the world's largest LNG consumers.
LNG Companies are Profiting - And
So Can You
With these points in mind,
StreetAuthority Market Advisor
newsletter editor Paul Tracy
profiled three of his favorite
companies that will benefit from the
explosion in LNG trade in coming
years. One of these picks has
delivered +270% total returns in the
last five years. Another
relative newcomer has averaged an
annual return of +72.6% since its
debut in July 2006.
To learn the name of these
securities, and to view the
Market Advisor's "Beat the S&P"
Portfolio -- which has outperformed
the S&P 500 for five consecutive
years -- we invite you to try a
no-risk subscription to the
Market Advisor. To learn more,
please
visit this link. |
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