As fracking continues to develop, with new reserves being discovered on a daily basis, the world has watched natural gas production surge. Though still a non-renewable resource, natural gas burns cleaner and is cheaper than crude oil. As the world looks to replace dated energy sources, natural gas figures to be an increasingly significant commodity. At the forefront of the NG movement has been the U.S., as its presence in the natural gas world has continued to skyrocket in recent years [for more natural gas news and analysis subscribe to our free newsletter].
The U.S. and Natural Gas
It has been no secret that the U.S. is the largest consumer of a number of fossil fuels, dwarfing the intake of other nations around the globe. But the production of these commodities has been steadily rising, with the U.S. now king of the gas world. In 2011, the country produced 62.7 billion cubic feet per day (bcfd), a record figure. That record was shattered in 2012, when the U.S. showed 65.7 bcfd for the 12 month period, an increase of 4.8% from the prior year. That figure also accounted for approximately 20% of natural gas produced worldwide. For 2013, the U.S. is already on pace to show another production record.
As production has surged, prices for the commodity have been battered, keeping something of a ceiling on NG. While this has hurt some traders and bottom line revenues for major producers, it has translated into lower energy bills and more money in the pocket of the consumer. The excess in supply has also led to speculation that the U.S. will begin exporting NG to foreign countries as some of the price differentials have painted a prime opportunity [see also The Case Against Fracking].
Exporting Natural Gas
“US natural gas producers have begun eyeing these markets due to the large differential in price between US natural gas and LNG prices in certain countries” writes Robert Rapier. Rapier goes on to explain that transporting NG products overseas costs approximately $6/MMBtu. Last year saw a price difference between the U.S. and Japan of $14/MMBtu and $8/MMBtu for European markets, leaving plenty of room for U.S. producers to turn a handsome profit. Below, we outline some of the ways investors can make a play on U.S. production and the prospect of exporting NG in the near future:
- ISE-Revere Natural Gas Index Fund (FCG): This ETF holds approximately two dozen natural gas producers in its portfolio, with 90% of them being based in the U.S. This will be a good diversified play for investors looking to take advantage of the movement as a whole.
- Cheniere Energy (LNG): After a failed investment in an NG import facility plummeted its share price, this company received approval from the U.S. Department of Energy to convert to an export facility. Since then, the stock price has recovered quite nicely with considerable upside potential should LNG exports take off.
- Exxon Mobil (XOM): The energy giant made the move to acquire XTO Energy in 2009. While it greatly boosted Exxon’s NG production, the low prices that soon followed hit the company hard. Should LNG exporting take off, Exxon has the potential to recover some of the losses the acquisition sparked and help the firm’s NG segment return to prosperity.
Disclosure: Long XOM.