Email of the day (1)
Comment of the Day

September 21 2011

Commentary by Eoin Treacy

Email of the day (1)

on North American natural gas exports:
"Because of the low cost of NG in US, I've been trying to research how exports of LNG could be profitable since we've got an abundance and more to come. But some wonder if it will ever be profitable from the US because of transportation costs.

"This company seems to have some good research:

"Government information including proposed/potenial LNG export sites:

"Your expertise and guidance would be very helpful to the collective considering this industry. You mention Cheniere and Golar but to my untrained eye their fundamentals look terrible.

"Dominion (D-US) which has some geographical advantages has applied to convert form import to export.

"Oregon is also converting from import to export but where will the gas come from?

"In Canada, look at which is owned by Apache and EOG.

"There's a lot of talk and I rambled around a bit looking for knowledge."

Eoin Treacy's view Thank you for this informative email. The prospect of North American LNG exports is attractive considering the arbitrage between the current domestic price and that evident in Europe and Asia. If it is economical to ship natural gas from Australia to China or Qatar to Japan, I don't see any reason it would not be economical to ship from British Columbia to China or the eastern USA to Europe.

As I mentioned in my piece on Monday a number of companies are in the process of redesigning import terminals for the export of LNG. Most of these are in the planning stages. No work has yet been completed. Cheniere Energy's Sabine Pass received approval from the DoE in May and could be considered the project closest to realisation. Dominion Resources Cove Point proposal is also still in the planning stages.

Developing additional customers for its natural gas is a political as well as economic aim for Canada. A pipeline from Alberta across the Rockies to Kittimat and a liquefaction facility need to be built. Considering PetroChina's interest in this project, it could be deemed to have a relatively high probability of coming to fruition. (Also see Comment of the Day on February 14th).

Apache pulled back sharply in July and while it has lost momentum, it continues to have a downward bias. A sustained move above $105 would break the progression of lower rally highs and suggest demand is returning to dominance. EOG Resources has lost momentum in the region of the lower side of the 18-month range but needs hold a move above C$92 to break the progression of lower rally highs. Encana encountered resistance in the region of the upper side of the almost 3-year range in March and has since trended lower. It is now testing the 2008 low near C$22 but a clear break of the progression of lower highs will be required to suggest demand is beginning to return to dominance in this area.

Regardless of where LNG export terminals are developed, shipping companies with the requisite cargo facilities will be required to transport the commodity.

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