Similar to the experience in oil, another cycle in a major U.S. energy source is coming to an end. In 2001, U.S. natural gas production hit a total of 53.7 billion cubic feet per day and has yet to surpass that peak. The Department of Energy and most prominent energy analysts expect that U.S. production will, at best, grow only slightly over the next 25 years.

Meanwhile, natural gas demand is growing at a pace that's set to far outstrip any modest increases in production in the coming years. Just as with oil, that trend spells rising import dependence for the U.S. gas market.

In the past, the main source of U.S. natural gas imports has been Canada. Of the roughly 9 billion cubic feet per day of U.S. imports required in 2006, nearly 90% was imported from Canada via pipelines. Canada is conveniently close to the U.S. and is stable politically -- it's a reliable trading partner.

Unfortunately, Canada won't be able to meet the growing gas consumption needs in the U.S. Canadian gas production has also hit a wall recently, and remains roughly flat with 2001 production levels. Meanwhile, Canada's own consumption of gas is growing at nearly +6% per year -- that means less gas is available for export to the U.S.

That raises a key question. Namely, if Canada can't supply the U.S. with the gas it needs, where exactly is it going to come from?

Enter a technology known as liquefied natural gas (LNG). LNG is not a different fuel than natural gas; rather, its just natural gas in liquid form. Natural gas is comprised primarily of methane, a colorless hydrocarbon gas. Or at least, it's a gas at room temperature; when cooled to -160 degrees Celsius (-260 Fahrenheit) natural gas liquefies. Like all gases, when methane liquefies, it shrinks in size -- LNG takes up less than 0.2% by volume of an equivalent quantity of methane in gaseous form.

LNG can be loaded onto specialized tanker ships and transported by sea just like crude oil. Before the advent of LNG, almost all gas was moved by pipeline. But with LNG, countries are no longer are bound to import gas only from adjacent nations via existing pipes. It's possible to transport gas hundreds or even thousands of miles just as easily.

And consider that some large and prolific natural gas reserves are located in fields too far from existing pipelines to be moved by pipeline. LNG allows producers to efficiently exploit these fields and transport that gas to market where it's desperately in demand. Before LNG, these remote gas fields had no real value.
 

By 2015, the U.S. Department of Energy projects that LNG will account for a larger share of U.S. natural gas imports than those from Canada. And as my chart shows, by 2030 that same agency expects LNG imports to account for nearly 5 trillion cubic feet per year.

Of course, it's not just the U.S. that's likely to see rising LNG trade. Some countries, such as Japan and Korea, are already major importers of LNG. In fact, in terms of current trade the U.S. is still a bit player, importing just 16.6 billion cubic meters of LNG in 2006. In 2006, Japan imported more than 81 billion cubic meters of natural gas in LNG form, equivalent to some 96% of total Japanese consumption that year.

And South Korea is just as dependant on LNG technologies today. Out of the nation's 34.2 billion cubic meters of gas consumption in 2006, no less than 34.1 billion cubic meters were imported in the form of LNG, primarily from the Middle East and Malaysia.

But there's another, even more significant tidal wave of demand in Asia on the horizon -- China. China accepted its very first shipment of LNG in 2006, a total of just 1 billion cubic meters, delivered from Australia. But that's set to become a much larger figure in coming years -- by 2015, analysts estimate that China will need to import as much as 45 billion cubic meters worth of LNG. That would make China one of the world's largest LNG consumers.

With these points in mind, my staff and I scoured the market in search of a handful of companies with exposure to the explosion of LNG trade in coming years. In the text that follows, we profile three of our favorites. . .

Important Note:  In the remainder of this article, StreetAuthority Market Advisor editor Paul Tracy provides an in-depth profile of three of the best plays on the budding LNG industry. These three companies are well-positioned to handle the surging consumption of natural gas and have projected long-term growth estimates of up to +50%! However, in order to view the remainder of this article, you'll need to subscribe to our premium investing newsletter -- Market Advisor. After you subscribe, you'll receive immediate access to this full article, as well as our monthly Market Advisor newsletter and a host of additional premium content. Please visit one of the following links to continue. . .
 

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-- Paul Tracy
Editor
StreetAuthority Market Advisor

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