Cheniere Energy Will Export US Natural Gas

| March 22, 2011 | 0 Comments

Russia has a bad habit of using their energy reserves as a political weapon.

It’s no secret much of Europe and the former Soviet states are dependent upon energy rich Russia for their oil and gas.

But time and again Russia’s government owned oil and gas business, Gazprom, has used their energy dominance as a political weapon.  They even cut off supplies to neighboring Ukraine in the dead of winter over a pricing dispute.

The bottom line is Russia doesn’t have a reputation as a dependable energy exporter.  And when given a choice, countries would rather import energy from just about anyone but Russia.

Now Russia is trying to capitalize on Japan’s nuclear crisis.  They’re trying to ensnare Japan into a web of natural gas dependence.

According to an article in the Wall Street Journal, Russia’s Prime Minister Vladimir Putin said, “Gazprom could pipe more natural gas into the European Union to allow EU-bound cargoes of liquefied natural gas (LNG) to be diverted to Japan.”

What’s more…

Russia’s offering Japanese companies a stake in Siberian natural gas fields.  And they’re pushing an “energy bridge” that would bring Russian-generated electricity via underwater cable to Japan.

That sounds great.  But don’t believe Russia is doing this out of a sense of charity or neighborly kindness.

Nope.  Russia’s trying to use the nuclear crisis in Japan and the unrest in Libya to their advantage.  They want to strengthen their position as a dominant player in the global natural gas market.

Simply put, Russia is desperate to increase exports of natural gas.

But here’s the problem…

Russian natural gas comes at a hefty premium to the market.  You see, Russia pegs natural gas prices to oil prices.

The result… Absurdly high natural gas prices.

That’s why they’ve had pricing disputes with other countries in the past. And it’s why none of the European countries want to increase their imports of Russian natural gas now.

In fact, almost all of Gazprom’s biggest European customers are taking just the minimum amount of gas their contracts allow.

If Russia really wanted to help Japan, they would get rid of their oil-linked pricing for natural gas.  They would sell their natural gas at market prices.  But the sad reality is… they’re not going to do it.

The bottom line is Russia’s using their energy reserves as a political weapon once again.

Here’s the scary part…

Europe and Asia could become more dependent on Russian natural gas.

Demand for natural gas could explode over the next few years.  Confidence in nuclear power has taken a major blow from the crisis in Japan.  And natural gas is in a position to pick up the slack from less nuclear power.

Consider this…

According to a Deutsche Bank study, if 10% of the world’s nuclear power plants were shut down, we would use an additional 7 billion cubic feet of natural gas per day.  That’s a 2.3% increase over 2010 consumption levels.

Where will the supply come from to meet the growing demand?

I’m sure a good chunk will come from the traditional suppliers like Russia, Algeria, and Norway.  But we’ll also see exports from an unlikely source… America.

That’s right.  The world’s largest importer of energy is on the verge of becoming a natural gas exporter.  The charge to export America’s excess natural gas is being led by Cheniere Energy (LNG).

I introduced readers to Cheniere Energy in a free report on the opportunities in natural gas stocks in September of last year.

At the time, Cheniere was trading for just $2.36 per share.  Since then, the stock has surged to a high of $10.53.  That’s a whopping 346% gain in just five months.

Now it’s pulled back to around $8 in the last few weeks.  This looks like a great buying opportunity to me.

Based on some back-of-the-envelope calculations, Cheniere’s LNG exporting business could generate $4 of profit per share as early as 2015.  Assuming a conservative PE ratio of 10x, the stock is worth at least $40.

That’s a projected fivefold return on your money!

Take a look at adding LNG to your portfolio.  This small American company is well positioned to go head to head with Russia in the natural gas market… and win.

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Category: Stocks

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets on a daily basis. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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