China sets the LNG industry on fire
Today's Financial News - Posted August 18, 2009
The world’s LNG industry is on fire, yet few folks are talking about it. No matter what corner of the planet you look, billion-dollar deals are getting signed all over the place.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): It is even more proof of China’s growing demand for global commodities. Hitting the wires this morning is word of a $41 billion deal between Exxon Mobil (NYSE:XOM) and the world’s second-most-valuable oil firm, PetroChina (NYSE:PTR).
For any investor following the up-and-down world of planet’s liquefied natural gas (LNG) sector, today’s announcement is more proof of the industry’s vital role in the future of energy.
The huge Australian gas field known as Gorgon is operated by Chevron (NYSE:CVX), which owns a 50% of the field. Royal Dutch Shell (NYSE:RDS.A) and Exxon share an equal proportion of the remaining stake.
Exxon has fully monetized its position thanks to today’s deal with China and the recent contract announcement with India’s Petronet LNG.
PetroChina has signed on for a sizeable chunk of the field’s 15 million tonnes of annual output. From Exxon it will buy 2.25 million tonnes per year for the next two decades. And it will get another 2 million tonnes from shell during the same period.
The Chinese firm is also signed up to buy 3 million tonnes from another, drastically smaller Australian field.
International feeding frenzy
Really, I am not sure where to start telling you the importance of these deals. It is major stuff and possibly the most under-rated, least-discussed action in the world’s energy sector.
First, it proves my take on China’s “commodity carry trade” was dead-on accurate. The country is doing everything it can to gain access to foreign commodity markets and their respective currencies.
Chinese companies have been all over Australia in recent months. Don’t let the Rio Tinto (NYSE:RTP) deal steal all of the attention. China and Australia sure have not let it get in their way of forging new business deals. The two countries desperately need each other.
The latest news also proves that LNG is a fuel of the future. With crude prices in high territory, yet below many drillers’ profit threshold, there is more than enough proof that crude production is getting more and more expensive and new discoveries are thinning out.
Fortunately there is no shortage of natural gas. But there is a shortage of viable forms of transporting the vital fuel source in its liquid state, a necessary method in locales without pipelines.
Transporting wealth
As more and more lucrative LNG contracts are signed, the folks locked into the contracts are hurrying to ensure they have the facilities to handle the fuel. Right now, PetroChina is working to build four LNG terminals throughout China.
Talk about a boost to local infrastructure spending.
For investors looking for a small-cap that takes advantage of the industry’s quick growth, look at Cheniere Energy (AMEX:LNG). The Houston-based company works in the Gulf region developing LNG terminals and operations.
The company is smack dab in the middle of its riskiest growth phase, but is quickly laying the foundation for strong long-term revenue streams.
There is no doubt LNG will play an increasingly large role in the nation’s energy industry. The Obama administration may not be ready to admit it or embrace it, but the facts are the facts.
Oil is expensive. Solar is merely a dream. Wind is filled with flaws. Nuclear is a political nightmare. The only option is natural gas, a fuel source America has plenty of.
As the fuel’s popularity takes off over the next decade, the demand to transport natural gas over long distances will increase, making LNG a very popular fuel source. Companies like Cheniere will be in the middle of the action.
This is going to be a big theme over the next 24 months.
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