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Cheniere Shifts To Exports

|Includes: Cheniere Energy, Inc (LNG)

Success in business is all about the ability to adapt to the market -- and it is something Cheniere Energy (NYSEMKT:LNG) knows about all too well. The company had built giant storage tanks at its Sabine Pass facility in 2008 after it seemed inevitable that the U.S. would require imports to meet the demand for natural gas, but its efforts were too early. The natural gas boomed stateside as drillers unlocked record volumes. This in turn drove prices for natural gas to roughly one-quarter that paid by people in Europe and Asia -- and all evidence suggests that the gas supply in the U.S. is not stopping here -- it could grow an additional 25% by 2035.

Cheniere could have let the tanks rust, abandoning them altogether, or sold them to another company. Instead, Cheniere redirected its efforts and has opted to turn the would be import facility to an export base. By 2016, the company's processing plant will be in position to ship out roughly 500 million cubic feet of gas a day -- and it isn't stopping there. "In the three years after that Cheniere expects to build five more identical systems," writes Forbes. "The $12 billion investment should in turn be able to export about 4% of America's current natural gas output, a remarkable turnaround for Cheniere and for Chief Executive Charif Souki."

"I built a $2 billion facility to import, and there were no imports," said Souki -- but the CEO persevered. "Shipping liquid natural gas is a tricky enterprise. Pipelines do the trick when you traverse a landmass. But while crude oil can be easily pumped out of the earth and dumped into a tanker ship, natural gas is generally too voluminous to be cost-effectively shipped via sea," explains Forbes. "The only way to solve this riddle is to chill the gas to -260 degrees Fahrenheit, shrinking it into a concentrate 1/600 of its natural state-a process Souki's plants are being built to accomplish."

There are several bills under review right now which could stand in Souki's way, such as the Keep American Natural Gas Here Act, which, if approved, would require that any company drilling for gas in the U.S. be required to sell that fuel only in the U.S. Souki will also have to face the risk of the North American Natural Gas Security & Consumer Protection Act, which would prevent any natural gas export facility from receiving regulatory approval until 2025. "This is America's natural gas, and it should stay here in America," said Congressman Ed Markey (D-Mass.), the man behind these acts.

However, Cheniere's Sabine Pass already obtained regulatory approval to export natural gas two years ago, including the ability to export to countries that do not have a Free Trade Agreement (NASDAQ:FTA) in place with the U.S. The U.S. Energy Department currently has over 20 export approvals in place, but only for Free Trade countries, and the government entity has been slow in issuing non-FTA approvals while the issue of whether gas exports are good for the country is debated. This last piece is crucial because it means that Cheniere is going to have a basic monopoly while the government irons out the details.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.