The Next Energy 'Supercycle' Is Now Underway
The next energy 'supercycle' is now underway... Demand for this commodity is surging... Why this is (finally) great news for the U.S... A busy day in the mailbag...
It's one of the most important trends in the resource markets today...
In the March issue of Commodity Supercycles, editor Bill Shaw told his readers about the surging demand for natural gas... or more specifically, liquefied natural gas ("LNG").
If you're not familiar, LNG is simply natural gas that has been supercooled and condensed into a liquid.
LNG has roughly 0.0017% of the volume of its gaseous form and is far less flammable. This allows it to be stored and shipped much more easily, safely, and economically than regular natural gas. And as Bill explained, global demand is suddenly exploding. From the issue...
Trading of LNG reached a total of 293 million metric tons in 2017, according to Royal Dutch Shell in its second annual outlook of the industry... That's 30% higher than expected.
Looking forward, estimates indicate that another 80 million metric tons per year of LNG will be added to worldwide totals over the next three years.
Most of the demand for LNG – nearly 70% – comes from Asia. By comparison, Europe makes up the next largest portion of global LNG imports at less than 18%.
Currently, Japan imports more LNG than anyone else...
But regular readers likely won't be surprised to learn much of this growth has been coming from China. More from Bill...
The world's most populated nation imported roughly 38 million metric tons of LNG in 2017. That's a remarkable jump of more than 50% from the prior year (25 million metric tons).
But that's just the beginning... Analysts expect China's annual demand for LNG to keep climbing at a similar pace for the next seven years or so. By 2025, the country should import about 65 million metric tons.
Bill says that pollution is driving much of this growth...
Today, China relies on coal to meet most of its energy needs. In fact, the country single-handedly burns half of the world's coal each year. But this has come at a significant cost...
The World Health Organization considers anything more than 10 micrograms of fine pollutants per cubic meter as hazardous to your health. In 2013, Xingtai – the oldest city in North China and home to more than 7 million people – recorded an average of 155 micrograms and a one-day peak of 688. Many other cities in the country face similar health concerns.
Of course, this doesn't mean China will stop burning coal anytime soon. It just isn't feasible. But the Chinese government has clearly started to move away from coal and toward cleaner-burning energy sources like natural gas. As Bill wrote...
In January, the country's National Energy Administration canceled plans for 103 coal-fired power plants. Before that, China already started to limit the number of future coal-fired plants that it approved. As a result, the country will come closer to meeting its goal of limiting total coal-fired power generation to 1,100 gigawatts by 2020.
Plus, China is building out the infrastructure needed to increase its LNG imports... The country brought two new terminals on line in the first half of 2017 that turn the LNG back into a gas. This process is known as "regasification." These plants – the China National Offshore Oil Corporation's (CNOOC) Yuedong terminal in Guangdong and Guanghui Energy's Qidong terminal in Jiangsu – have a combined capacity of about 2.6 million metric tons.
But China isn't stopping there... It has another 20 million metric tons per year of LNG terminal capacity that should be completed this year.
China will be soon be able to process more than 70 million metric tons of LNG imports per year...
That's nearly double what it used last year. And as Bill noted, other countries are following China's lead...
Right now, India – No. 2 in world population behind China – imports about 20 million metric tons of LNG through four terminals. But according to government officials, the country plans to build another 11 LNG import terminals over the next seven years. As a result, the country's LNG import capacity will soar 250% to more than 70 million metric tons by 2025.
Over the next decade or so, we'll also see more LNG imported to countries in Southeast Asia – like Thailand, Singapore, and Indonesia. By 2030, Bloomberg estimates that Southeast Asia will account for about 43 million metric tons of LNG imports per year. That's eight times more than what the region combined to import in 2016 (5 million metric tons).
Even countries like Poland, the Netherlands, the U.K., and Malta have started importing LNG. So as you can see, the world will need a lot more LNG going forward to meet demand.
This is great news for the U.S...
Thanks to the recent shale boom, the U.S. is practically swimming in natural gas today. More from Bill...
The growth of hydraulic fracturing ("fracking") and horizontal drilling have transformed the natural gas industry. We can now easily extract natural gas that wasn't accessible or cost effective to reach in the past. As you can see in the following chart, natural gas production hit a record high of more than 33 trillion cubic feet (Tcf) last year...
Meanwhile, we keep finding more of the stuff... At the end of 2016, the U.S. Energy Information Administration (EIA) reported that we had more than 340 Tcf of known natural gas reserves in the country. That's 5% more than the previous year. And it's a jump of roughly 70% from the less than 200 Tcf in 2000.
In short, we have more natural gas than we can use in the U.S. And we're going to keep finding more.
There's just one problem...
For decades prior to the shale boom, the U.S. was an importer of LNG. This meant it had plenty of LNG import terminals, which "regassify" LNG into a useable form of energy. But it had only one small export terminal, which turns natural gas into LNG.
In other words, for the past several years, the U.S. has had more natural gas than it knew what to do with, but virtually no capacity to sell it to countries that needed and wanted it.
But Bill says that's finally changing...
According to the U.S. Energy Information Administration, the country's LNG exports are forecast to ramp up from essentially nothing in 2016 to 5 trillion cubic feet per year in a decade or so. That might not seem like a lot... But keep in mind that we just started exporting LNG a couple of years ago. In the following chart, you can see how rapidly this transition will occur...
All told, 12 export facilities are either operating or have been approved for construction across the country. And U.S. LNG exports are now ramping up...
In February 2016, Houston-based Cheniere Energy (LNG) became the first U.S. company to export LNG through its Sabine Pass terminal near the border of Texas and Louisiana. Expansion continues at the plant, which will ultimately have a production capacity of about 27 million metric tons per year. Cheniere is building a similar plant in Corpus Christi, Texas, which will add another 22 million metric tons of capacity per year.
About a month ago, Cheniere signed the first-ever long-term contract to supply LNG from our country to China. In the deal with China National Petroleum Corporation, Cheniere will deliver up to 1.2 million metric tons of LNG per year through 2043. This follows an agreement in May 2017 between the U.S. and China that opened the gates for such deals.
And the developments keep coming... Richmond, Virginia-based Dominion Energy (D) announced [this month] that the first tanker carrying LNG left its Cove Point facility in Calvert County, Maryland at the end of February. Natural gas is piped to the site for processing from the prolific Marcellus shale formation.
Bill says the bottom line is clear...
The next energy supercycle is now underway. And that means there will be big "winners" – and big "losers" – in the years ahead.
But here's the best part: Bill and his team have identified a sure winner in this massive trend.
You see, rather than try to pick a winner among the various LNG producers and processors, they've found a company that will benefit directly from a growing LNG trade.
This company has invested hundreds of millions of dollars in recent years to capitalize on this trend, and already has long-term contracts with some of the largest energy companies in the world. Bill expects its earnings could increase more than fivefold over the next two years as these investments begin to pay off... no matter what happens to natural gas prices along the way.
Of course, it wouldn't be fair to Bill's subscribers to share all the details here today. But you can get instant access to this recommendation with a 100% risk-free trial subscription to Commodity Supercycles. Get started right here.
New 52-week highs (as of 3/19/18): none.
A busy day in the mailbag: Confusion about short-selling... Feedback on Stansberry Investor Hour and Stansberry's Credit Opportunities... Kudos for Bryan Beach... And a question about Jim Grant's spring investment conference. As always, send your questions, comments, and concerns to feedback@stansberryresearch.com.
"What are short sales?" – Paid-up subscriber Brenda S.
Brill comment: A short sale is a bet that a stock's price will fall. You can think of it as the opposite of buying a stock the usual way. When you buy a stock – also known as opening a "long position" – you make money if the price of that stock rises. When you sell a stock short, you make money if the price of that stock falls.
Technically, the process involves borrowing the stock from your brokerage firm (which first borrows it from a customer who owns the shares in a margin account).
For example, suppose you want to short 10 shares of company XYZ... You would ask your brokerage firm to borrow 10 shares. If the firm doesn't have any customers with company XYZ's stock in a margin account, no shares would be available to short, and you wouldn't be able to open that trade. If shares are available, you could sell the shares short. The cash for the sale would then be credited to your brokerage account.
For the sake of simplicity, let's suppose each share of company XYZ is currently trading for $100. In this case, your brokerage account balance would be credited $1,000 for selling those 10 shares short. And your position would appear in your account as negative 10 shares of company XYZ.
When you decide to close – or "cover" – that position, you would go into the market and buy back 10 shares of company XYZ. The negative share balance would be zeroed out, and the cost of that purchase would be subtracted ("debited") from your account balance.
If your bearish bet was correct and XYZ declined 50% to just $50 per share, your account would be debited $500. In other words, it would only cost you $500 to buy those shares back... and you would pocket the difference. In this case, you'd keep $50 per share, or $500.
Of course, the inverse is true as well. If you were wrong, and shares of XYZ rose to $110 per share instead, you would be debited $1,100 to close the position. Since you were only credited $1,000 to open the position initially, you would owe an additional $100.
"Hi Porter, I'm a few episodes behind on the podcast, but I wanted to share a couple of things from the one with Steve Forbes. I'm just now listening to the interview, and he's a very interesting guy, but my comments are about some things you said before the interview began.
"First, the way you described how it shouldn't matter who the president is, made a lightbulb go off in my head. I feel much the same way about our current president. While I definitely think some of his behavior is disgusting, I just can't get as worked up over him as so many others – including some of my family and friends do. I don't wear a pink hat or go to marches because I'm not convinced that Hillary would have been a better choice, despite the fact that I am an actual person of the female persuasion.
"The other thing on my mind is about Stansberry's Credit Opportunities. As an Alliance member (long-term, and very happy about it), I don't think I count toward your membership number, but I do follow it, and I wanted to let you know that the Iconix call was The Best. I bought in at 83 back in November, and just had it redeemed yesterday for an annualized return of 58%!
"By the way, I use E-Trade. I haven't been able to get all of your picks at the recommended price, but the E-Trade platform is fairly easy to use. You do not have to phone in the order.
"As far as I'm concerned, what you have to say is far too important to worry about a few swear words. I've heard 'em all and been known to spout a few from time to time. And if you happen to find a marijuana stock that you like, I want to know about it. So, for those people who disagree, [forget them] if they can't take a joke." – Paid-up Stansberry Alliance member Laura Okin
"[And] congratulations to Bryan Beach on his invitation to present at Jim Grant's spring conference, and to Bryan and his fellow masters of the universe Mike DiBiase (and Bill McGilton) for their truly groundbreaking work on the Golden Triangle strategy. I imagine it's like discovering penicillin or the pattern of the primes. Very exciting, very lucrative, and very much worthy of praise. Bravo, gentlemen." – Paid-up subscriber LAF
"I won't be able to watch Jim Grant's conference live, due to travel commitments. For those of us who would like to watch the conference and subscribe to a year of Grant's Interest Rate Observer, would we be able to watch a replay of the conference? Thanks." Paid-up Stansberry Alliance member Bud Jenschke
Brill comment: Absolutely, Bud. As part of your 2018 Grant's spring conference registration, you'll also receive unlimited "on demand" access to watch (and re-watch) the webcast at your convenience. You can get all the details right here.
Regards,
Justin Brill
Baltimore, Maryland
March 20, 2018