The rapid adoption of hydraulic fracturing and advanced drilling techniques has allowed exploration and production (E&P) firms the ability to exploit North America's vast shale formations in their search for new sources of supply. However, these extraction methods may have proven too good. The United States and Canada are awash in a virtual sea of natural gas. So much so, that prices for the fuel and funds like the United States Natural Gas Fund (ARCA:UNG) have fallen well below their historic highs.
Those relatively low prices have prompted a variety of producers to begin questioning what to do with our new found bounty. One option- which recently scored a major win- is to begin exporting to countries where the demand is greater. For investors, the growth in liquefied natural gas (LNG) exports could be one of the biggest trends facing the domestic energy sector.
SEE: A Natural Gas Primer

A Big Approval 
Hydraulic fracturing is truly an efficient method of producing natural gas. New estimates from the Department of Energy puts domestic natural gas reserves at a huge 2,384 trillion cubic feet. That's an increase of 22% versus 2010 estimates and is enough energy to power the U.S. for another 105 years. That huge lifespan has some analysts worried about long term lower natural gas prices for producers.
Given those higher reserve estimates many producers see exporting through LNG as a way to combat overall lower prices.
At its core, LNG is essentially natural gas that is cooled under pressure and converted into a liquid in order to be transported by tanker ships to markets not connected by pipelines. The fuel is then converted back into a gas at various import terminals. While the LNG import market in the U.S. is relatively non-existent, demand for the fuel in emerging Asia continues to skyrocket. As these economies continue to industrialize and grow, the need for more energy is becoming a critical issue. To that end, many have begun the process of building new import terminals to gain access to the fuel.
Potential exporters recently got a big win via a critical approval. Since the DoE signed off on exports from Cheniere Energy’s (AMEX:LNG) Sabine Pass terminal back in 2011, a fierce battle has been waged in Washington about additional export facilities. This week the Feds finally approved unrestricted natural gas exports from Freeport LNG's Quintana Island facility located in Texas. Analysts estimate that the approval could finally open the flood gates for the more than 26 other facilities waiting in limbo.
All in all, that could be the shot in the arm for the domestic natural gas industry to realize higher long term profits.
SEE: Fueling Futures In The Energy Market

Playing the Growth in U.S. LNG Exports 
Given that LNG exporting has been given the green light here in the U.S., investors may want to cash in on the trend. Both Dow Chemical (NYSE:DOW) and ConocoPhillips (NYSE:COP) own the newly approved Freeport facility. Freeport has been cleared to export roughly 511 billion cubic feet of natural gas annually for the next 20 years to all points in Asia- especially Japan. Already the facility has secured contracts with various utilities in the nation. The two firms could be big winners once the facility is up and running.
Also winning big could be both Dominion Resources (NYSE:D) and Sempra Energy (NYSE:SRE). These two firms are just some of the 26 different companies vying for a permit from the DoE and FERC. However, both utilities represent projects that are most likely to be approved from the Feds.
With LNG liquefaction, debottlenecking and receiving terminals costing billions of dollars to construct, engineering and construction firms like Chicago Bridge & Iron (NYSE:CBI) and Foster Wheeler AG (Nasdaq:FWLT) should get the nod from investors. The pair represents the two key infrastructure firms that are responsible for the bulk of current and new capacity infrastructure coming online in the years ahead. As construction ramps up, both CBI and Foster Wheeler should see higher growth than their current multiples suggest.
Finally, it stands to reason that natural gas-focus producers here in the North America have the biggest to gain as they will be able to sell their production at higher prices overseas. However, as natural gas prices cratered over the last few years, many have switched more profitable shale oil. That leaves pure producers like EnCana (NYSE:ECA), Ultra Petroleum (NYSE:UPL) and Range Resources (NYSE:RRC) in a great spot to profit.
SEE: Oil And Gas Plays In North America

The Bottom Line 
For U.S. producers of natural gas, exporting that bounty is seen a necessary way to profit from higher demand overseas as well as higher prices. The potential of those exports received a major win recently from Uncle Sam as another facility gained regulatory approval. For investors, the time to add some capital to the sector could be now.

At the time of writing, Aaron Levitt did not own shares in any of the companies or funds mentioned in this article.

Related Articles
  1. Active Trading

    Oil And Gas Industry Primer

    Before jumping into this hot sector, learn how these companies make their money.
  2. Active Trading

    Uncovering Oil And Gas Futures

    Find out how to stay on top of data reports that could cause volatility in oil and gas markets.
  3. Fundamental Analysis

    5 Biggest Risks Faced By Oil And Gas Companies

    Before investing in gas and oil stocks, consider such factors as political and geological risks.
  4. Investing

    5 Common Trading Multiples Used In Oil And Gas Valuation

    Before you decide to invest in oil and gas, you should understand these multiples.
  5. Fundamental Analysis

    Accounting For Differences In Oil And Gas Accounting

    How a company accounts for its expenses affects how its net income and cash flow numbers are reported.
  6. Stock Analysis

    The Biggest Oil Producers in Asia

    Learn which Asian countries deliver the most crude oil to market, and discover what companies are the biggest producers in each country.
  7. Mutual Funds & ETFs

    Top 3 Japanese Bond ETFs

    Learn about the top three exchange-traded funds (ETFs) that invest in sovereign and corporate bonds issued by developed countries, including Japan.
  8. Stock Analysis

    The 5 Biggest Russian Oil Companies

    Discover the top Russian oil companies by production volume and find out more about their domestic and international business operations.
  9. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  10. Savings

    Become Your Own Financial Advisor

    If you have some financial know-how, you don’t have to hire someone to advise you on investments. This tutorial will help you set goals – and get started.
  1. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  6. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!