LNG Surges as Japan Vies With China, Exxon's Shipments Grow
Comment of the Day

September 19 2011

Commentary by Eoin Treacy

LNG Surges as Japan Vies With China, Exxon's Shipments Grow

This article by Dinakar Sethuraman for Bloomberg may be of interest to subscribers. Here is a section:
"In the high-case scenario, U.S. shale gas could provide an exportable surplus by 2020," Stuart Traver, a consultant for the company in Singapore, said in the presentation. Shale gas accounted for approximately 20 percent of total U.S. production in 2010.

In fracking, producers force chemically treated water into underground shale wells to break up rock and let gas flow. About 84 trillion cubic feet of undiscovered, technically recoverable gas lie in the Marcellus Shale under New York and seven other states, the U.S. Geological Survey said Aug. 23. The U.S. Environmental Protection Agency is studying the effects of fracking because opponents say it's a threat to drinking water.

Qatar and producers such as Australia, Malaysia and Indonesia are competing to satisfy demand for LNG from China and India, the world's fastest-growing major economies. China's imports rose 27 percent to 5.2 million tons in the first half of 2011 from a year earlier and reached a record in July, according to customs data.

Eoin Treacy's view Natural gas is gaining increasing popularity among Asian consumers as their standard of living increases. Its ease of use, price, cleanliness compared to coal or oil, availability and security make it an attractive alternative. Japan's tsunami and the resulting questioning of nuclear energy's viability for such an earthquake prone country has resulted in a leap in demand. Nevertheless, current fears about a global economic slowdown have weighed on the sector.

Qatar has been the most notable exporter as it brings its massive resource base to market. A number of major oil companies such as Exxon Mobil and Royal Dutch Shell now produce more gas than oil on an energy equivalency basis. Infrastructure development across Asia remains a priority and the long-term outlook for this fuel looks attractive.

At present there is no global market for natural gas. The regional nature of the market has created arbitrage opportunities between the supply dominated North American trading environment and the demand dominated Asian environment. A number of companies in the USA are redesigning LNG import terminals so they can export this valuable fuel.

Cheniere Energy Partnership is the parent company of Cheniere Energy. Neither has been immune from the recent selling pressure but the former has an annual yield of 11.64%. It has paid out 42.5¢ on a quarterly basis since 2007. The Partnership remains in a medium-term downtrend and has encountered resistance in the region of the 200-day MA since March. A sustained move above $17.50 would be required to suggest demand is beginning to return to medium-term dominance. The share broke out of its two-year base in November 2010 but encountered resistance near $10 and has returned to the lower side of what appears to be a first step above the base. A sustained move below $6 would be required to question that hypothesis.

Among LNG tanker companies, Belgium listed Exmar has underperformed; not least because it cut its interim dividend in August. It failed to sustain the breakout from the more than yearlong base in March, fell below the 200-day MA in July and has pulled back below the 2009 and 2010 lows near €4.80. The share has paused in the region of €4 but a clear upward dynamic will be required to suggest demand is returning in this area.

Golar LNG had become quite overextended before pulling back sharply in August. It found support in the region of the 200-day MA and continues to hold above it. A break in the short-term progression of higher reaction lows, currently near NOK140, would be required to question potential for some additional higher to lateral ranging.

Teekay LNG Partners has a solid record of dividend payments and currently yields 7.62%. In a pattern common to a number of energy related Master Limited Partnerships the share lost momentum from March and has since posted a progression of lower rally highs. It encountered resistance in the region of the 200-day MA in August and a sustained move above $35 is now required to question the medium-term supply dominated environment.

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