Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
UK EU Election Results, Brexit Party Victory, Labour and Tory Bloodbath, UKIP and ChangeUK Die - 27th May 19
The Three M's of Hyperinflation : Milosevic, Mugabe, And Maduro - 26th May 19
Global Multi-Market / Asset Charts Review - 26th May 19
An Oil Shock Could Be the Black Swan That Finally Drives Gold Higher - 26th May 19
Brexit Party Forces Theresa May to Resign, Boris Johnson Next Tory Prime Minister? - 26th May 19
IBM - Investing in AI Machine Intelligence Stocks - 25th May 19
Seasonal Dysfunction: Why Generations of Gold and Silver Investors Are Having Such Difficulty - 25th May 19
Employment - The Good and the Bad of Job Automation - 25th May 19
Gold Mining Mid-Tier Stocks Fundamentals - 25th May 19
Buy This Pick-and-Shovel 5G Stock Before It Takes Off - 25th May 19
China Hang Seng Stocks Index Collapses and Commodities - 24th May 19
Costco Corp. (COST): Finding Opportunity in Five Minutes or Less - 24th May 19
How Free Bets Have Impacted the Online Casino Industry - 24th May 19
This Ultimate Formula Will Help You Avoid Dividend Cutting Stocks - 24th May 19
Benefits of a Lottery Online Account - 24th May 19
Technical Analyst: Gold Price Weakness Should Be Short Term - 24th May 19
Silver Price Looking Weaker than Gold - 24th May 19
Nigel Farage's Brexit Party EU Elections Seats Results Forecast - 24th May 19
Powerful Signal from Gold GDX - 24th May 19
Eye Opening Currency Charts – Why Precious Metals Are Falling - 23rd May 19
Netflix Has 175 Days Left to Pull Off a Miracle… or It’s All Over - 23rd May 19
Capitalism Works, Ravenous Capitalism Doesn’t - 23rd May 19
The Euro Is Bidding Its Time: A Reversal at Hand? - 23rd May 19
Gold Demand Rose 7% in Q1 2019. A Launching Pad Higher for Gold? - 23rd May 19
Global Economic Tensions Translate Into Oil Price Volatility - 22nd May 19
The Coming Pension Crisis Is So Big That It’s a Problem for Everyone - 22nd May 19
Crude Oil, Hot Stocks, and Currencies – Markets III - 22nd May 19
The No.1 Energy Stock for 2019 - 22nd May 19
Brexit Party and Lib-Dems Pull Further Away from Labour and Tories in Latest Opinion Polls - 22nd May 19
The Deep State vs Donald Trump - US vs Them Part 2 - 21st May 19
Deep State & Financial Powers Worry about Alternative Currencies - 21st May 19
Gold’s Exciting Boredom - 21st May 19
Trade War Fears Again, Will Stocks Resume the Downtrend? - 21st May 19
Buffett Mistake Costs Him $4.3 Billion This Year—Here’s What Every Investor Can Learn from It - 21st May 19
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

How Exporting US Natural Gas Will Transform Global Energy Markets

Companies / Natural Gas Jun 28, 2013 - 04:31 AM GMT

By: The_Energy_Report


Here's the situation: North America is swimming in cheap natural gas, whereas international markets are thirsty for it and paying a premium. Now that the DOE is beginning to approve LNG export permits, North American producers have major incentive to drill, baby, drill. To get an expert perspective on the coming LNG supply shift, The Energy Report turned to Cantor Fitzgerald Analyst Sam Wahab, who keeps tabs on global oil and gas developments from his base in London. This is a must-read interview for anyone who wants to profit from a potentially massive shift in natural gas fundamentals.

The Energy Report: Sam, how will an increase in the export of liquefied natural gas (LNG) from the U.S. affect the price of that increasingly abundant commodity?


Sam Wahab: LNG export potential is a very hot topic at the moment, given the significant disparity in gas prices in the U.S. and almost everywhere else in the world. Depressed U.S. gas prices provide an investment opportunity. Low prices have already contributed to a resurgence in the U.S. petrochemical industry. Utility companies are shifting away from coal to using natural gas for electricity generation. If the U.S. becomes a major exporter of LNG, there will be good opportunities for companies with expertise to make strategic acquisitions.


The push to export natural gas stems from the fact that the U.S. simply has too much of it. Thanks to the fracking-led energy boom, U.S. natural gas prices have collapsed. Many recently drilled wells have been shut down because pumping costs more than the gas can be sold for in the market. But gas prices in other parts of the world are not nearly so low. In Europe, gas prices are five times higher than in the U.S. That disparity offers an incredible incentive for energy companies to put their gas on a ship and send it abroad.


TER: Are there any other political and economic obstacles to ramping up U.S. exports?


SW: The Department of Energy has 20 export applications pending. Most of the applications are from smaller firms, but the facilities can be used to ship gas for big oil companies, including BP Plc (BP:NYSE; BP:LSE)Royal Dutch Shell Plc (RDS.A:NYSE; RDS.B:NYSE)Exxon Mobil Corp. (XOM:NYSE), or Chevron Corp. (CVX:NYSE). The government has been taking a cautious approach on exports. The Energy Information Administration reports that as natural gas exports increase, gas prices may rise between 3–9% which translates into a 1–3% increase in utility bills for residential consumers. Overall, manufacturing job losses due to increased exports should be minimal, and should be more than offset by the positive economic effects of increased drilling and greater export revenue.


American manufacturers remain concerned that too much export could drive up the price of natural gas, which is a key energy source for making plastics and polymers and industrial chemicals. But manufacturers have recently launched more than 100 new projects designed to take advantage of America's low natural gas prices, and they have invested billions of dollars creating half a million new jobs. Going forward, manufacturers claim that 5 million jobs could be on the line if exports are not handled properly, although they are cautiously comfortable with the fairly slow pace of export approval. No one expects that all 20 permits will be approved.


TER: American consumers are used to cheap natural gas. Do you see a backlash if prices increase?


SW: I do not see prices increasing significantly unless exports are rolled out on a large scale. America is sitting on more gas than it is going to use domestically for quite an extended period of time. There will be a squeeze on the end-consumer if prices do rise, but I do not expect a huge backlash. The U.S. consumer has enjoyed an extended period of low gas prices following the U.S. shale boom: All things must come to an end.


TER: Is an increase in the possibility of massive U.S. exports of liquid natural gas a positive sign for junior explorers and producers in North America and Europe?


SW: Access to a large market with higher spot prices will always be positive for junior explorers in the U.S., as that will invariably increase the commerciality of exploration and development. This is especially important following the long period of consolidation in the U.S. market, and the dramatic fall in exploration for gas following the U.S. shale boom.


In Europe, the last few years have seen a significant, albeit unsuccessful drive to replicate the U.S. using the same fracking techniques employed in North America. Juniors, such as San Leon Energy Plc (SLE:LSE; SLGYY:OTCBB), Aurelian Oil & Gas (which recently merged into San Leon) and 3 Legs Resources (3LEG:LON) have all capitalized on the plethora of unconventional gas resources in Europe and the continent's comparably high gas price environment.


In the U.K., the recent listing on the shale oil and gas exploration has brought renewed focus to exploration there. IGas Energy Plc (IGAS:LSE) has just announced that its licenses in Northwest England could hold between 15 and 172 trillion cubic feet (Tcf) of gas. Although that is a preliminary estimate, it is considerably higher than was previously contemplated.


Elsewhere around the globe, a very interesting company has caught my attention: Falcon Oil & Gas Ltd. (FO:TSX.V; FOG:AIM; FAC:ESM). It operates in Australia, South Africa and Hungary. It was recently admitted to London's Alternative Investment Market. While geographical diversification is a core aspect of Falcon's portfolio, the company has considerable conventional resource potential across all of its assets: The company holds 14.7 million acres in total.


Falcon benefits from relationships with well established partners, namely Hess Corp. (HES:NYSE) in Australia and Gazprom (OGZD:LSE; GAZ:FSE; GAZP:MCX; GAZP:RTS; OGZPY:OTC) in Hungary. Those alliances can help to carry the company through the initial phases and provide technical skills and financial resources. Falcon is embarking on an active work program through the end of 2014 alongside these strong industry partners. Additional transactions are expected to reduce the financial exposure of derisking its substantial portfolio. Considering our expectation that Falcon's near-term shale gas drilling in Hungary will be followed by a decision to drill five carried wells in Australia, we feel that Falcon's current share price undervalues its material potential within its asset base.


TER: When we talked last December, you were bullish on CBM Asia Development Corp. (TCF:TSX.V) —whose share price has fallen—and Tethys Petroleum Ltd. (TPL:TSX; TPL:LSE) —whose share price has risen. What is your current view on those two firms?


SW: I remain very bullish on both companies. CBM Asia has an active year ahead with a work program that is geared toward first-stage pilot production. The company is incorporating two pilot programs, one in the Barito Basin and the other in Central Sumatra, as well as dewatering activities at the Sekayu PSC and the Kutai West CBM PSC. Significantly, the production pilots are planned in areas where CBM Asia holds operatorship, thereby avoiding reliance on outside partners. In addition, the company's recent joint venture agreement to farm into Exxon's Barito Basin CBM blocks, as well as potential PSCs and joint studies in the Kutai Basin, is clearly significant. In our view, the deal offers a combination of technical and financial strength, as well as the operational efficiency that will be crucial in developing the basins. This deal unlocks the upside potential identified through initial data analysis. Our model calculates the potential for 9.7 Tcf net recoverable, which, if confirmed, could be transformational for CBM Asia.


Tethys Petroleum remains on track and the share price has performed in line with expectations following the company's farm out of its Tajik assets to Total S.A. (TOT:NYSE) and China National Oil and Gas Exploration and Development Corporation (CNODC). Tajikistan represents an entirely different proposition to investors, in our view. Tethys has a 28% effective interest in the Bokhtar PSC following the completion of the farm-out negotiation, which represents a significant proportion of the externally validated 27.5 billion barrel (27.5 Bbbl) recoverable prospective resource base.


Full details of the 2013-2014 program will be announced very shortly; however, we would expect 2013 to consist of a seismic survey and subsequent data interpretation followed by a deep exploration well in 2014. We would also expect further exploration and development drilling in Kazakhstan as the company continues to target their 1.3 Bbbl gross mean recoverable prospective resource base.


TER: Moving back across the pond, how would an increase in U.S. exports increase junior action in the Gulf of Mexico?


SW: Any increase in demand and a resulting shift in prices will invariably attract junior exploration. Nevertheless, the sheer cost involved in mounting a pure-play exploration program in the Gulf of Mexico is a barrier to entry. One company of note that I cover in the Gulf is Energy XXI (EXXI:NASDAQ). It entered the region in 2005 and purchased key assets from Exxon in 2010. The potential of U.S. exports has pushed the company to invest in the Gulf even more this year. The company budgeted a capex program of $750 million ($750M). Approximately 75% of the firm's fiscal 2013 budget targets development drilling, and 25% of the budget targets exploration drilling.


Energy XXI has a geographically focused portfolio with some of the largest margins in the industry. It is focused on developing acquired properties while ramping up a complementary exploration program designed to provide organic growth. Also, it has more than 120 million barrels oil equivalent (120 MMboe) in proved reserves. It is set to soon produce 50,000 barrels of oil equivalent per day, of which 70% is oil. The signs look good for this company.


TER: What is the international dynamic between the use of coal by utilities and the emergence of LNG as a cheap reliable energy source?


SW: The sudden abundance of cheap natural gas has dramatically changed the way that the U.S. produces and consumes energy. Modern natural gas-fired power plants produce much cheaper energy compared to coal plants. Burning natural gas, which is mainly methane, produces far less carbon dioxide than burning coal—a modern gas-fired power plant emits roughly two-fifths the carbon a modernized coal plant emits. Some economists say it's hard to overstate the significance of the sudden availability of cheap natural gas. In my opinion, it is the largest change in our energy system since nuclear power became part of the electricity grid 50 years ago.


However, applying simple economics, utilities might return to using more coal in the future as increased demand makes natural gas more expensive. And the developing countries are behind the U.S. in terms of replacing coal with gas. But the replacement trend is growing. Over the next 20 years, global demand for natural gas is expected to rise dramatically, fueled by rapid economic growth in Asia. With the development of LNG, many companies are positioning to take advantage of that emerging market.


TER: How much would the price of natural gas have to rise to make coal more attractive in the United States?


SW: That is a difficult figure to calculate. There are a lot of social and economic forces in play, including carbon emissions and climate change protocols that the government is trying to put in place. Governments could even prohibit the use of coal. In my opinion, gas prices could rise dramatically in the U.S., and gas would still be the preferred option over coal.


TER: What advice do you have for investors looking to enter or stay the course in gas-oriented firms?


SW: While oil and gas prices rise and fall, there is an overall resurgence in regional and global energy markets being driven by increased demand from the Asian economies, including China, India and Korea. The investment needs that accompany resurgence should set the stage for sustained merger and acquisition activity over the long-term. As for LNG, investors must consider the likely movement of supply and demand over time.


TER: Thanks so much, Sam.


SW: Thank you.


Sam Wahab began his career at PricewaterhouseCoopers (PwC), where he qualified as a prize-winning chartered accountant. On PwC's energy team, he specialized in assurance and transaction advisory. His clients included Royal Dutch Shell and JKX Oil & Gas. Following a spell in the oil and gas research team at Arbuthnot Securities, Wahab joined Seymour Pierce in 2011. He now heads up oil and gas equity research at Cantor Fitzgerald. His coverage includes companies with global operations on multiple stock exchanges.


Want to read more Energy Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.


1) Peter Byrne conducted this interview for The Energy Report and provides services to The Energy Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: none.
2) The following companies mentioned in the interview are sponsors of The Energy Report: CBM Asia Development Corp., Tethys Petroleum Ltd., Royal Dutch Shell Plc and Energy XXI. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Sam Wahab: I or my family own shares of the following companies mentioned in this interview: None. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent. 
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. 
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.


Streetwise – The Energy Report is Copyright © 2013 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.


Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.


Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.


Participating companies provide the logos used in The Energy Report. These logos are trademarks and are the property of the individual companies.


101 Second St., Suite 110
Petaluma, CA 94952


Tel.: (707) 981-8204
Fax: (707) 981-8998

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules