Capitalizing on U.S. Liquefied Natural Gas Exports

Tickers in this article: CQP D EPB ETE GMLP SRE TGP YMLP

NEW YORK (TheStreet) -- Liquefied natural gas, or LNG, is one of the fastest-growing energy markets globally, while the United States is the fastest-growing natural gas producer worldwide.

This combination is creating a compelling investment opportunity with LNG terminal and shipping master limited partnerships (MLPs).

The opportunity is being fueled by a U.S. LNG export market benefiting from three broader trends:

  1. Rapidly growing domestic natural gas production
  2. Favorable pricing in the U.S. vs. the rest of the world
  3. An energy industry already preparing for exports.

Production Growth

In 2005, the U.S. produced 18 trillion cubic feet (Tcf) of dry natural gas, roughly in line with annual production over the 20 years prior.

By 2012, the United States was producing 24 Tcf of dry natural gas, an increase of 33% over the course of seven years. Shale gas, which is recovered using hydraulic fracturing and horizontal drilling, accounted for approximately 30% of total production in 2012.

The U.S. Energy Information Administration further estimates that annual natural gas production will increase to nearly 27 Tcf by 2020 and to 33 Tcf by 2040.

The increase in supply means the price of natural gas in the U.S. should continue to remain under pressure keeping prices far below other regions across the globe.

Worldwide Pricing

The chart below shows the landed price of liquefied natural gas at ports around the world as of November 2013.

As you can see, pricing differentials exist throughout the world -- the price of LNG is in the low $3 range in the U.S., $10 in Europe and $15-$16 in Asia.

The substantial LNG price differential between the U.S. and other regions (namely Asia) will drive exports and as long as pricing remains favorable in the United States, exporting LNG will be a profitable and growing trade.