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How to Profit from Chinese LNG Demand

On April 30, a U.S. House congressional committee passed a bill that would streamline the approval process for exporting liquefied natural gas from the United States. Sponsored by Rep. Cory Gardner (R-CO), the bill would require the Department of Energy to make a decision on LNG export applications within 90 days after the close of the public comment period.

The bill has a long way to go before becoming law, but its ultimate fate may not be that important. It appears that the Obama administration is keen to allow LNG exports to move forward, albeit in a gradual way, to countries without which the U.S. has a free-trade agreement.  The Department of Energy has approved seven LNG export projects, with a combined capacity of around 13 billion cubic feet per day, or 96 million metric tons of LNG per year (mmtpa).

This amounts to more capacity than the world’s largest LNG exporter – Qatar – currently has (77 mmtpa), so if all of those terminals moved forward the U.S. would become one of the world’s top producers.

But that doesn’t mean that all of these projects will be constructed, and even if they are, there is no guarantee that they will be profitable.

LNG is Risky

There is a lot of exuberance regarding the potential of LNG. The reason for the excitement is the remarkable arbitrage opportunity – natural gas prices sit below $5 per million Btu (MMBtu) in the United States, while in Asia, spot cargoes can fetch…

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