A US Energy Department study released Dec. 5 has intensified the debate on what America should do with its abundance of natural gas – which could lead to huge opportunities for natural gas companies.
But the NERA Economic Consulting study, done at the DOE's request, showed the United States would get a positive economic boost from exporting liquefied natural gas (LNG), even under all possible scenarios in which exports are envisioned.
"Across all these scenarios, the US was projected to gain net economic benefits from allowing LNG exports. Moreover, for every one of the market scenarios examined, net economic benefits increased as the level of LNG exports increased," the study found. "In particular, scenarios with unlimited exports always had higher net economic benefits than corresponding cases with limited exports."
The study could increase the chances of the Energy Department approving permits for natural gas companies to build LNG export facilities. Only one company has ever been approved to build an LNG export terminal, and at least 15 more LNG export projects are waiting for the green light.
Here's why companies are vying for a piece of the LNG export market.
Natural Gas Companies to Watch
Some US natural gas companies are ahead of competitors in setting up LNG-export facilities.
Investors who want to profit from LNG exports should keep an eye on these:
Cheniere Energy Inc. (NYSE: LNG) is a Houston, TX-based company with the only currently approved LNG export terminal. The Department of Energy in January approved Cheniere Energy's Sabine Pass Liquefaction terminal in Cameron Parish, LA, which could ship up to 2 billion cubic feet of gas per day by 2015. The company also has plans to open a new export terminal in Corpus Christi, TX that could be operational by 2017.
LNG's stock is up over 103% this year and still has room to grow, as analysts' average target price is more than 20% above its recent price of $17.10.
Dominion Resources Inc. (NYSE: D), a Richmond, VA-based energy producer and transporter, is up 9% this year and provides a solid dividend yield of 4.1%. Dominion hopes to gain approval for its export terminal located in Cove Point, MD and join Cheniere as a leading exporter of LNG.
Analysts are starting to catch on, as last week Credit Suisse reiterated its "Outperform" rating on Dominion and recently both ISI Group and Argus updated their ratings from a "Hold" to a "Buy."
Chevron Corp. (NYSE: CVX), based in San Ramon, CA, should continue to become a leading supplier of LNG exports around the globe with its Wheatstone and Gorgon projects in Australia. Wheatstone's initial capacity is 8.9 million metric tons of LNG per year with maximum daily production of 1.4 billion feet of cubic natural gas. The Gorgon Project is Australia's largest single-resource project, with a 15 million-metric ton per-year LNG facility. Chevron has also funded Cheniere in the development of Sabine Pass and is working to expand its natural gas production in the US On top of all that, CVX stock offers a 3.3% dividend yield.
Veresen Inc. (TSE: VSN), headquartered in Calgary, Veresen is the owner and developer of the Jordan Cove Point Energy Project located in Coos Bay, OR. If approved, Jordan Cove will allow Veresen to operate amid almost no competition on the West Coast. Besides an export terminal in Alaska all other terminals in the US are in the east. VSN stock offers a solid 8.4% dividend and according to the Relative Strength Index, a widely used tool to assess whether a stock is oversold or overbought, VSN has a RSI reading of 26.15 – any reading under 30 indicates oversold.
KBR Inc. (NYSE: KBR) is an alternative play on the natural gas export boom because it helps makes LNG facilities, instead of being a pure energy company. KBR is a leading LNG production facility developer, having constructed more than 40% of LNG production facilities around the world. As spending on LNG plants increases, KBR will get more business - and profits.
Ben Gersten is associate editor of Money Morning.