United States Turned Net Natural Gas Exporter In April

Summary

• The United States exported more natural gas in April to Mexico and other nations than it imported from Canada.
• Cheniere Energy's third Sabine Pass LNG Train began initial operations in March of 2017.  A fourth train could become operational before the end of the year.
• Exports to Mexico are expected to continue to grow as additional pipeline capacity is added.

The United States surprisingly exported more natural gas in April than it imported. The trend in growing exports has been in place the last few years. The latest EIA table on supply shown below reports natural gas imports were a negative 9 Bcf in April of 2017. This is the first time in forever the U.S. exported more natural gas to other nations than it imported from Canada.

Cheniere Energy (LNG) has been the key driver in turning the U.S. into a net natural gas exporter. The company entered 2017 with two LNG trains fully operational. Each train can account for up to 0.6 Bcf/d in exports. Cheniere has started operating its third LNG train, and the company plans to have its fourth train operating before the end of the year. Cheniere could be exporting up to 2.4 Bcf/d by the end of 2017.

Exports to Mexico continue to grow. According to the EIA, exports to Mexico reached an all-time high of 4.15 Bcf/d in March of 2017. Mexico has discovered that it is cheaper to import natural gas from the United States than it would cost to develop their own natural gas resources. As long as this remains Mexico's policy, then natural gas exports to Mexico should continue to grow. The chart below shows the dramatic rise in exports to Mexico:

The U.S. currently supplies less than half of Mexico's natural gas demand. It can be expected that the U.S. will not only capture a larger share of the market, but also all of the growing demand for natural gas in Mexico. Additionally, Cheniere Energy can eventually expand its operations to include up to 12 LNG trains. And, Cheniere is not the only company looking at potential LNG exports of natural gas from North America. The bottom line is the U.S. is now poised to be a net-exporter of natural gas for the foreseeable future.

In HFI Research's 2017 Out-Look on Natural Gas, they estimate that weather-normalized structural demand will be approximately 2.5 Bcf/d greater than supply. They further estimate that natural gas prices will need to rise above $4 per Mcf to encourage drilling outside of the Northeast to meet the need for additional supply. Because of the warmest February on record in 2017, natural gas storage remains above normal levels for this time of year. With structural demand exceeding supply, it is only a matter of time before natural gas storage levels fall below widely followed five-year average.

Investors looking for ways to profit from a potential rise in natural gas futures prices could consider doing their own due diligence on large natural gas producers like Chesapeake Energy (NYSE:CHK), Devon Energy (NYSE:DVN), or Anadarko Petroleum (NYSE:APC). The stock price for these companies could outperform natural gas futures. But the price of oil and their own debt issues may cause them to underperform a natural gas price spike. Investors looking for a direct correlation with natural gas futures prices should consider an ETF.

ETFs To Which Natural Gas Fundamentals Are Relevant:

• The United States Natural Gas ETF, LP (NYSEARCA:UNG)
• VelocityShares 3x Inverse Natural Gas ETN (NYSEARCA:DGAZ)
• VelocityShares 3x Long Natural Gas ETN (NYSEARCA:UGAZ)
• ProShares Ultra Bloomberg Natural Gas ETF (NYSEARCA:BOIL)

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.