William Patalon III: Just days after Money Morning columnist Peter Krauth predicted a global uptick in liquefied natural gas (LNG) demand because of the nuclear-powerplant disaster in Japan, experts predicted the Asian heavyweight would boost LNG imports by 50% to help ease the massive energy shortage the country now faces because of the tragedy.
Krauth is Money Morning‘s resident natural resources expert, and he also runs the “Global Resource Alert” advisory service. Late last month, in the special report “A Trillion Reasons to Bet Big on LNG,” Krauth told Money Morning subscribers to take a close look at liquefied natural gas, predicting that Japan would seize upon LNG as a ready and plentiful partial solution to its increasingly serious energy-shortfall quagmire.
Japan relies on fuel imports for most of its energy needs. After the March 11 earthquake and subsequent powerplant accident ruined 20% of its nuclear power output, Japan has been forced to seek out other sources of electricity.
Krauth knew that, even before the earthquake and powerplant accident, Japan already consumed about 35% of the world’s annual liquefied natural gas output, meaning heightened LNG imports would be one of the most likely candidates to make up for the energy shortfall.
Krauth also understood that Japan had to move quickly – especially since the fast-approaching hot-weather season would only exacerbate that country’s energy shortfall.
Surprisingly, we very quickly received a number of comments, e-mails and other bits of feedback from readers who ardently disagreed with Krauth’s LNG imports prediction.
Krauth knew that he’d be vindicated. But even he was surprised at just how quickly that vindication arrived.
LNG Imports Will be the Key
The very next night after we published Krauth’s essay, Radio Japan – the country’s external shortwave-broadcasting service – reported that Indonesia, the world’s third-largest exporter of liquefied natural gas, was looking to ship as many as 21 additional cargoes of the fuel to Japan this year.
And the “vindication” didn’t stop there.
A day after the Indonesia revelation, Radio Japan reported that the prime ministers of Japan and Australia were meeting to discuss ways that Australia could help Japan solve its energy shortfall. Australian LNG imports was listed as a likely option.
And that still wasn’t the end of it.
A few days later, a survey of experts revealed that Japan would likely boost LNG imports by 50% to address the energy shortfall.
Years ago, when I was covering Eastman Kodak Co. (NYSE:EK) as a business reporter for the Gannett Co. Inc. (NYSE:GCI) newspaper in Upstate New York – and broke a big story – a Wall Street analyst friend of mine who also followed the photo giant would routinely telephone me, and would start off his call with the greeting: “Congratulations, my boy – you just hit the ammo dump.”
I brought that little tradition with me to Money Morning: When the very smart gurus who write for you “hit the ammo dump” with a major market “call,” I immediately phone them to offer congratulations – and to pump them for some follow-up fodder to present to all of our readers.
A Look Ahead
After reviewing all three of the global media reports that supported his prediction that Japan would dramatically boost its LNG imports, I telephoned Peter to congratulate him for a call that was impressive in both its accuracy and timing. I reached him at his office in Canada, where he and his family live so that he can be closer to many of the natural-resources companies that he follows for the “Global Resource Alert” (so many of the miners and energy firms that he follows are Canadian-based). After accepting my kudos, his comments were both modest – and matter of fact.
Said Krauth: “In assessing the consequences of Japan’s nuclear disaster, it was clear to me that LNG would really benefit,” he said in a call from his office up in resource-rich Canada. “Of all the options, it made the most sense in terms of a quick turnaround time.”
Added Krauth:“And here’s the other thing, Bill: When it comes to worldwide demand growth, the global uptick will not be limited to Japan. South Korea is eyeing Canada’s high arctic as a major LNG source, and making concrete moves.
“This past January, a group of South Korean ‘natgas’ executives, including the CEO of Kogas (Korea Gas Corp.), the world’s largest LNG importer, met in Canada’s Northwest Territories. Though in its infancy, their idea is to someday import LNG from Canada’s Mackenzie Delta through an eventual LNG terminal. Korea could ship the gas in ice-breaking LNG tankers across the top end of Alaska, and on to Asian ports.
“And they’re serious about taking position. Kogas has already agreed to pay $30 million for 20% of a Northwest Territories gas field currently owned by MGM Energy Corp. (PINK:MGMCF).
“Clearly, projects like this face important challenges both financial and technical. But with higher energy prices, those barriers can come down pretty quickly.”
[Action to Take: Canada – thanks to massive supplies of liquefied natural gas (LNG) and very little domestic demand – is making a big push to become a major LNG exporter. The Kitimat LNG terminal in British Columbia is being converted into an export hub. Its supply source will be the large-scale Montney and Horn River Basins of British Columbia and Alberta.
Kitimat LNG is a producer-owned export facility whose initial annual capacity will be 5 million metric tons. The operator will be Apache Corp. (NYSE:APA), and ownership will be shared between Apache, EOG Resources Inc. (NYSE:EOG), and EnCana Corp. (NYSE:ECA).
Peter Krauth is Money Morning‘s resident natural-resources expert. And his favorite play on the predicted LNG-export surge is Apache, which he views as a nice balance of acceptable risk and promising returns. To read all of Krauth’s analysis, check out his earlier Money Morning essay: “A Trillion Reasons to Bet Big on LNG.”]
Related Tickers: United States Natural Gas Fund (NYSE:UNG), United States 12 Month Natural Gas (NYSE:UNL), iPath DJ-UBS Natural Gas TR Sub-Idx ETN (NYSE:GAZ), First Trust ISE-Revere Natural Gas Idx (NYSE:FCG), iShares Dow Jones US Oil Equipment Index (NYSE:IEZ), Jefferies | TR/J CRB Wildcatters Exploration & Production Equity ETF (NYSE:WCAT).