The No. 1 Export for the Future
Sep 9th 2011 10:18AM
Updated Sep 9th 2011 10:20AM
The great Tom Petty once wrote, "The waiting is the hardest part." While fans may claim he was addressing intimate relationships, I know he was really lamenting the time it takes to build a liquefied natural gas export terminal. Apache (NYS: APA) is well under way with plans to develop such a facility outside of Vancouver, but even if everything goes according to plan, the plant won't be up and running until 2015.
But we're buy and hold long-term investors, right? Three years is no big deal! Let's take a look to see if this news makes Apache a consideration for our portfolios.
Apache will operate the plant in conjunction with EOG Resources (NYS: EOG) and EnCana (NYS: ECA) . The plant will sit 400 miles north of Vancouver in Kitimat, British Columbia. A 287-mile pipeline operated and maintained by Pacific Northern Gas will run from Summit Lake, B.C., to Kitimat. The expected price tag for the project is $3.5 billion.
Business discussions are under way to lock in customers in the Asian markets, and again, first shipments aren't expected until 2015.
The LNG situation in North America
Right now, there is no facility in North America capable of liquefying natural gas for export, which makes the Kitimat facility incredibly important. Cheniere Energy (ASE: LNG) also has a facility project in the works on the Gulf Coast, but its construction is subject to further federal regulatory approval. At a price tag of $6.4 billion, the company that hasn't made a profit in 13 years also needs to come up with financing, securing Kitimat as North America's most likely bet right now.
Is it worth it?
It only takes a minute to figure out why these companies are willing to put billions of dollars toward building these export facilities. The price of natural gas in North America is $4 per million cubic feet; the price of natural gas in Asia can be as high as $13. Demand in Asia is skyrocketing: China's consumption alone has risen 20% in the last seven years. As fellow fool Dan Dzombak shows, even when you factor in the costs of liquefaction and transport, companies still stand to make a killing exporting natural gas.
Additionally, exporting natural gas would cut the supply available for sale in North America and drive up prices, which currently sit at half of what they were in 2008. This is especially important considering that right now most North American natural gas producers aren't making money on the stuff.
There are existing LNG export terminals across the world that could threaten Kitimat's potential success, most notably those in Qatar and Australia. In fact, more than $200 billion worth of LNG ventures have been proposed in Australia by big oil and gas players like Chevron (NYS: CVX) and Royal Dutch Shell (NYS: RDS.A) .
Still, Kitimat will likely be investors' best chance to play the LNG export market in North America. Global competition is a risk, but the plant is 1,000 miles closer to Shanghai than Qatar, with access to all of the gas reserves Western Canada has to offer.
It's going to be a three-year race to the finish to see if Apache is able to cash in on Asia's high demand for natural gas. It certainly looks to be the best bet coming out of North America, but whether it can compete with other global powers remains to be seen.
Want to stay up to date on Apache's progress? Click here to add it to My Watchlist.
At the time this article was published Motley Fool newsletter services have recommended buying shares of Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.