Unless you've been living under a rock, then you probably know that countries around the world are trying to slowly phase out coal from the power grid. And they've largely succeeded. Peabody Energy (NYSE: BTU), one of the world's largest producers, has lost nearly 90% of its market value over the past five years.
But across from any loser there is a winner. In this case, natural gas has supplanted coal as the chief power source in the developed world. It accounts for one-third of the electricity in the United States, more than coal, nuclear, hydroelectric, wind, and all other sources.
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That's partially because it's plentiful and inexpensive, but also cleaner-burning and more environmentally friendly -- emitting less than one-tenth the pollutants of coal. Natural gas will play a key role in meeting the future energy needs of a growing world.
Fortunately, we have abundant supplies trapped in basins such as the Marcellus Shale and Haynesville Shale. In fact, the United States is now the world's largest natural gas producer, with output expected to surge by another 8 billion cubic feet per day this year -- the biggest increase on record.
But other nations are starved for supplies. I'm talking about countries such as Japan, India and Korea. They lack the homegrown production to meet their needs and must rely on imports to bridge the gap. The supply/demand situation is far tighter in Tokyo than Houston (for instance), so gas prices have historically been much higher in many foreign markets than here at home.
Instead of settling for meager domestic prices below $3 per thousand cubic feet (Mcf), exports would open a gateway connecting U.S. suppliers with overseas buyers willing to pay two to three times as much.
The question is, how do we get it there?
Until recently, shipping natural gas overseas was infeasible from a cost standpoint. But all that changed when a way was discovered to chill methane to minus 260 degrees Fahrenheit, a temperature at which the gas can be compacted to 1/600th its normal volume. For context, that would compress a 17-inch beach ball to the size of a ping pong ball, making for economical long-distance shipping.
On the other end of the journey, the super-refrigerated liquid is then warmed back to gaseous state and pumped into pipelines for delivery to power plants, factories, utilities and other users.
The market for liquefied natural gas (LNG) is, in a word, booming.
The U.S. Will Be A Major LNG Exporter
The Federal Energy Regulatory Commission (FERC) has given the green light to more than a dozen liquefaction facilities and export hubs here in the United States. The first was Cheniere Energy's (NYSE: LNG) Sabine Pass on the Louisiana coast. The 1,000-acre complex is fed by local pipeline and ideally located next to marine loading terminals that can accommodate 400 vessels annually.
This plant refrigerates billions of cubic feet a day, sending out cargoes of liquid gas to customers in Latin America, Asia and elsewhere. With other facilities under construction, the United States is expected to become the world's third-largest LNG exporter within the next two years.
And we're not alone.
The number of countries supplying LNG has nearly doubled from 12 to 20 since 2000. Still, they can't keep up, because the number of countries receiving imports has quadrupled from 10 to 40. Malaysia and Indonesia are two of the newer purchasers, joining a host of others from Jamaica to Pakistan.
As with many commodities, China has the most ravenous appetite. The country imported 38 million tons of LNG last year, an increase of 46% from the previous year, making it the fastest-growing market. Overall, global LNG trade has tripled from 100 million tons in 2000 to nearly 300 million in 2017.
For context, that's enough gas to power 575 million homes.
Last year's shipments grew by 30 million tons, which is about 30% more than economists were anticipating. Shell notes that much of the additional volume was pulled by importers, not pushed by exporters, an important distinction. Demand grew by 17 million tons in Asia, for example, and rose by 10 million tons in southern Europe – double what was forecast.
Much of this supply was pre-sold under long-term contracts. But with new demand running hotter than contracted supply, I'm seeing a surge in spot cargo deliveries, which climbed 17% last year to 1,100 – about three per day.
When will this demand boom end? No time soon. World populations are growing daily, increasing the strain on existing power grids and forcing countries like China and India to build new power plants at a brisk pace. At the same time, tougher environmental regulations are hastening the transition from coal to gas.
As I mentioned, worldwide energy usage will expand 30% by 2040. Natural gas demand is expected to grow twice as fast as energy demand. And LNG is projected to grow at double the pace of natural gas. This is truly the sweet spot of the energy markets.
Shell just released its long-term outlook, 28 pages of charts, graphs and in-depth analysis. I've read it all (that's what my High-Yield Investing subscribers pay me for) and will skip right to the conclusion: after nearly reaching 300 million tons last year, annual LNG shipments will soar to 400 million tons within the next five years and 500 million tons by 2030.
No wonder forward-looking companies are investing billions in LNG liquefaction infrastructure to meet this anticipated demand. There are $88 billion in projects planned or under construction in my home state of Louisiana alone. For investors, that spells opportunity.
I have already recommended two LNG related enterprises in the past. The first was Chart Enterprises (Nasdaq: GTLS), a leading manufacturer of advanced cryogenic cooling equipment. I bought the stock last July, and it has already delivered a gain of more than 60%. But it pays zero dividends.
My second choice is a much better fit for us over at High-Yield Investing. It offers a whopping yield of 10% -- and the dividend has just been raised yet again. But to get the name and ticker symbol of this pick, you need to be a premium subscriber.
The good news is that you can give High-Yield Investing a try at absolutely no risk to you whatsoever. To learn more, simply go here.