Friday, May 31, 2013
On May 17, the Department of Energy kicked off the next leg of the natural gas boom...
It approved the first natural gas export facility in two years.
That's huge news. You see, the natural gas market isn't a typical "global" market, like the ones for iron ore, copper, or crude oil. All those commodities are easy to ship around the globe. So for example, copper prices in one part of the world are usually pretty close to copper prices in another part of the world.
But natural gas isn't so easy to ship. Prices can be very low in one country and very high in another. In India, Europe, and Asia, for example, natural gas averaged around $11-$16 per million British thermal units (BTUs) last year. That's roughly 150%-300% higher than U.S. prices.
As I've showed you in previous essays, that big "spread" has created a tremendous opportunity for folks who own and build the infrastructure needed to export natural gas.
And with the government finally ready to grant approval for new export facilities, this bull market could get another boost.
This move should come as no surprise to Growth Stock Wire readers. In February, I said it was just a matter of time before our government approved these liquefied natural gas (LNG) export facilities.
The government gave permission to LNG terminal operator Freeport LNG to export natural gas from its Quintana Island, Texas facility. It will cost $10 billion to construct the terminal. Once operational in four to five years, this facility will be capable of sending massive amounts of our cheap natural gas to starving nations all over the world. It's only the second natural gas export terminal in the country to gain approval.
And it's just the beginning.
You see, over the past two years, energy giants like ExxonMobil, BP, and Chevron partnered up with some of the largest state-owned energy giants to build LNG export facilities in America. There are about 19 projects in the pipeline waiting for government approval.
These projects didn't get approved in 2012 because it was an election year. Neither party would risk votes by approving such a measure – as widespread LNG exports will bring higher domestic gas prices in time.
However, with the election in the rearview mirror, the government ran out of excuses not to approve these LNG terminals. And studies commissioned by the government and released in January showed the huge economic benefits of building these LNG facilities. I expect our government to approve at least six of these exporting terminals over the next 12-18 months.
Natural gas won't start to flow abroad right away. These export terminals are extremely expensive and extremely complex. They can take up to seven years to build.
But a lot of companies will start to see the benefits of these approvals almost immediately, including LNG infrastructure companies like KBR (KBR) and Chicago Bridge and Iron (CBI).
Almost 40% of KBR's revenue comes from LNG projects. CBI receives more than 30% from LNG infrastructure. Whenever the government approves a new facility, these two companies are likely to sign contracts to build them.
Both stocks have seen big runs higher. But even now, they're cheap. KBR is trading at 11 times forward earnings. That's a huge discount to the average S&P 500 company, at 15 times forward earnings. KBR also has a strong balance sheet and is expected to grow earnings north of 20% annually over the next two years.
CBI is also cheap trading at 12 times forward earnings. And the company is expected to grow its earnings more than 30% annually over the next two years. That's four times faster than the average S&P 500 company. Plus, superinvestor Warren Buffett's Berkshire Hathaway just purchased $360 million worth of CBI last quarter. That was Buffett's only addition to his portfolio in the past three months.
I suggest buying these names on a pullback. As more LNG export facilities receive government approval, KBR and CBI will likely receive huge contracts to construct them.
In short, you have a chance to buy two cheap companies with massive long-term growth potential in the natural gas boom.
Last year, Porter put together a two-part series about the potential of this energy boom, which he calls "one of the biggest economic trends of my lifetime."