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Liquefied Natural Gas (LNG) ugly – but much better than nuclear

the increased demand for LNG……There is clearly a growing need and interest in natural gas around the world.

The Ugly Stepsisters, Forbes, Pamela Rosenau, 27 April 11, In the US, the energy industry is much maligned. Oil and natural gas are the ugly stepsisters of alternative energy. The BP spill in the Gulf received intense media coverage and inspired protests and outrage. We are starting to see similarly heated reports about natural gas, as journalists and activists draw attention to the potential negative environmental effects of shale drilling practices. But relative to the specter of nuclear meltdowns, these ugly stepsisters don’t look so ugly.

The bottom line is that Japan still needs to service its electricity and fuel needs, and the country has to turn somewhere. Europe is also lacking abundant natural resources, yet countries there are starting to dial down nuclear efforts in the wake of this episode. Germany, Italy and Switzerland (and even the US) have all announced curtailments in nuclear operation and development efforts. On top of that, the continued unrest in Libya is particularly worrisome to Europeans, who meet a meaningful 10% of their energy needs from Libyan imports. So Europeans will have to consider new sources of energy as well.

Domestic energy companies are actually extremely well positioned for these shifts in demand. The large integrated companies like Chevron and Exxon have invested in LNG projects for the last several years. They have set up supply terminals in natural gas rich areas such as Australia and Qatar, and also built re-gasification stations in end markets such as Europe. Therefore they can step up to meet the increased demand for LNG………

Additionally, natural gas is an abundant, cleaner burning fuel than coal, and we continue to find new sources of it in the US. Because of this supply glut, natural gas prices domestically are only a fraction of their cost in global markets.  But there is clearly a growing need and interest in natural gas around the world. In an increasingly globalized commodity market, price arbitrages don’t last long. Either producers will curtail unprofitable production (see natural gas rig counts at their lowest levels in a year), or they will sell their gas into more attractive markets, and we will reach an equilibrium clearing price. We will need infrastructure such as pipelines and processing plants in order to channel the gas to the most thirsty customers. The major beneficiaries of this infrastructure build-out will be energy Master Limited Partnerships, as they are responsible for constructing the pipelines, terminals and plants that keep energy flowing from point A to point B.

Although the development of alternative energy technology is an important long term objective for all energy consuming nations, it might be in our best (investment) interest to court the ugly stepsisters a while longer.

April 28, 2011 - Posted by | 2 WORLD, ENERGY

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