The U.S. Is Disrupting This Global Market… And Three Companies Stand to Profit Most

Matthew Carr By Matthew Carr, Emerging Trends Strategist, The Oxford Club

Oil & Gas

The United States is sometimes referred to as “The Saudi Arabia of Natural Gas.” That’s because the U.S. dominates natural gas production much like Saudi Arabia dominates oil production.

But this wasn’t always the case.

Hydraulic fracking and the ability to drill shale dramatically changed the future of the U.S. natural gas industry.

Now Russia and the United States are the top two horses in the global natural gas race.

Russia’s reserves can’t be ignored. They stand at 1,688 trillion cubic feet – far more than the U.S.’s 338 trillion cubic feet.

Iran also has larger reserves than the U.S., but the country’s massive domestic demand keeps it a net importer.

The U.S.’s biggest advantage over a country like Russia is infrastructure. can drill, transport and get natural gas to market faster than almost any other nation.

Over the past decade, American natural gas production surged 51.9%. Today, the U.S. is experiencing record natural gas production…

Despite the fact that, right now, very few rigs are drilling for natural gas.

Currently, the U.S. is producing 71 billion cubic feet per day of natural gas. Since that’s more than we currently can consume, natural gas prices tumbled recently to a 17-year low.

The country sits on a massive resource base. Prior to now, it had nowhere to go because of bans on exports.

But that’s no longer the case.

As a result, a number of energy and resources plays have done exceptionally well this year.

Silver and gold miners have soared as metals prices leapt higher. Over the last six months, the Energy Select Sector SPDR ETF (NYSE: XLE) has gained more than 20%. That has outpaced the broader markets during the same span, fueled by the rebounding prices of crude and natural gas.

But one energy play, which I’ve written about here before, is doing even better… gaining nearly 80% since February.

Energy_Outperforms_the_Broader_MarketsWhy?

Because in February, Cheniere Energy (NYSE: LNG) became the first continental U.S. company to start exporting liquefied natural gas (LNG).

But Cheniere is just the first step in the U.S.’s disruption of the global LNG market. Thanks to the massive supply of natural gas and new LNG trains coming online, the U.S. will soon be the third-largest LNG exporter in the world.

By 2020, the U.S. will represent 14% of global LNG capacity.

For now, Cheniere has sent 19 tankers from its single terminal in Louisiana. In four years, there will be five export terminals operating in the U.S., along the Gulf of Mexico and in Maryland.

By then, global LNG export capacity will have increased 45%. That will be largely due to the U.S. and Australia.

Besides Cheniere, Sempra Energy (NYSE: SRE) and Dominion Resources (NYSE: D) have LNG trains under construction.

As the first out of the gate, shares of Cheniere have skyrocketed…

Cheniere_EnergyBut Sempra and Dominion should start seeing some upside momentum soon. Investors just have to be patient.

Sempra’s Hackberry LNG terminal will begin operation in 2019.

Dominion’s Cove Point received export approval in 2014. So, project completion is still a few years away.

In 2015, LNG trade grew to $120 billion. It overtook iron ore as the second-largest commodity market in the world. The only market larger is crude. And we’re already seeing the disruptive impact from American LNG. Premiums to U.S. prices are half what they once were.

And prices are falling. In fact, in the Pacific, LNG prices fell from an average of $15.60 per million British thermal units in 2014 to $9.77 per mmBtu in 2015.

For exports, the new Panama Canal reduces shipping costs for U.S. companies exporting to Chile and Asia.

Cheniere, Sempra and Dominion are the three companies set to profit most as the U.S. launches into the global LNG trade. The pace will move quickly as American LNG disrupts a market that it has never been a key exporter in.

Good investing,

Matthew