LNG to Asia: who is best positioned to profit?
Of the 3 fossil fuels, natgas is currently the most undervalued, yet has the best prospects for growth. After a massive coal-fired electricity-generation buildout in China and India, high coal prices (Peak Coal?) will make future capacity increases much smaller. New coal plants in Japan, U.S, Europe are near-nil. Oil will go up in price, but, unfortunately, reserves are increasingly owned by governments. The oil majors can't replace what they produce (except maybe Exxon). When BP tries to buy Russian oil prospects, the Robber Barons who run that country push them out. No more big oil fields are likely to be discovered, anywhere on earth. So that leaves natgas.
Within the natgas industry, LNG looks to have the best growth prospects. Natgas today isn't a global market, because there isn't enough capacity yet, to move much between continents. So there are a lot of isolated regional markets. Some of these regional markets have overcapacity and low prices, some the opposite. The ongoing LNG buildout should change this, greatly benefiting whoever has:
1. the most reserves,
2. lowest production costs, and
3. is allowed to make profits by governments.
The highest natgas prices today, and the biggest demand growth for LNG, will be in Asia: Japan, Taiwan and S. Korea today; China and India are the biggest markets LT; later: SE Asia, maybe Latin America. Europe will also import some, but they are stagnant cultures with stagnant economies and falling populations; demand won't grow fast there. The China market is the big prize.
Nations with large natgas reserves greater than domestic demand: Quatar, Iran, Russia; Australia, Papua New Guinea, Indonesia; U.S., Canada; Venezuela, Nigeria. Quatar leads today, recently opening the largest export plant in the world. Australia will be next. The infrastructure has long lead times for a build-out. The limiting factor, deciding which countries dominate the LNG export market, will probably not be natgas availability, but political and regulatory stability. Nobody wants to invest billions in infrastructure, and then see it confiscated, or destroyed in a war. Deleting nations with those risks, from the list above, leaves just Australia, U.S., Canada; perhaps Papua New Guinea makes the short list.
As governments mandate/subsidize wind and solar, this requires either hydro or natgas, as backup for wind and solar's inherent variability. Denmark, because they are connected to the huge electricity market in Germany, and hydro in Norway, have been able to increase wind to 20% of their total electricity supply. Not many countries are in that situation. In markets where hydro isn't available, the only other choice is natgas, to back-up wind and solar. Coal and nuclear plants cannot ramp up and down quickly, so they don't complement wind and solar. Almost all government Green policies will result (even if they don't want to) in greater natgas use. This is an unintended consequence investors can take advantage of.
So, which companies will profit, supplying LNG to Asia? Some of the choices:
1. XOM: largest natgas company in the U.S., but can't get it to Asia; 15B$ LNG venture in Papua N.G.
2. Apache wants to complete Kitimat LNG terminal to export Canada natgas by 2015
3. CVX, COP, RDSA, TOT are building facilities to ship LNG from Australia
4. Shell owns 30% of the new Quatar LNG export facility
5. IOC (Interoil) in PNG (CC has done an excellent job following this story; I don't understand how to figure out whether IOC is worth 120$ or 10$ a share, but I'll keep trying....)
6. Who else? |
