Friday, April 11, 2014
We are about to see a massive spending boom take place in the natural gas industry.
Currently, the biggest hurdle for energy companies selling U.S. natural gas overseas is getting government approval to build liquefied natural gas (LNG) export facilities.
Only six applications to build such terminals have been approved since 2011. Right now, there are 23 more just sitting on the Department of Energy's (DOE) desk.
But soon, that could all change...
On Wednesday, the U.S. House of Representatives voted to advance a bill that would eliminate the need for government approval of LNG export facilities. That means energy companies would be able to build these LNG facilities almost the same way McDonald's builds new restaurants across the U.S. – whenever and whenever they want to.
If the House and the Senate approve the bill – which is a strong possibility – we would see an immediate $160 billion in spending by big energy companies. That would lead to windfall profits in the industry...
As longtime Growth Stock Wire readers know, America has an abundance of cheap natural gas. Overseas supplies are lower and prices are much higher – often 200%-400% higher.
This is a huge opportunity for folks who can get our cheap natural gas to the global market. But getting approval to build exporting facilities along U.S. coastlines is a lengthy process.
If energy companies are able to bypass the DOE approval process, there will be a mad rush to build many LNG terminals all at once.
Sempra Energy – a utility giant that got approval for its LNG export terminal in February – estimates it will spend $7 billion to construct its new facility in Louisiana. That's a conservative number compared with other LNG-approved facilities.
So if this bill passes and all 23 companies currently awaiting approval are able to build their facilities... that amounts to at least $160 billion spent on new construction.
That's great news for companies like KBR (KBR) and Chicago Bridge & Iron (CBI). KBR receives 40% of its revenues 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 companies generate a combined $18 billion in sales. That's great. But it's nothing compared with the $160 billion in contracts that could soon be up for grabs.
If CBI and KBR receive just 12% of this money, their sales will double.
Remember... this bill has not been approved by Congress yet. The House advanced it – meaning it is slotted to come up for a vote... and the House will likely approve it. But getting the bill through the Senate will be far more challenging.
Most Democrats (who control the Senate) are against building these facilities. But new developments out of Russia are beginning to change some of their minds...
For example, there are huge concerns about energy security in Europe and Ukraine. They import most of their natural gas from Russia. But Russia has a history of cutting off supplies during times of crisis. Its desire to seize control of Ukraine classifies this as a "time of crisis."
If more LNG facilities can be built in the U.S. over the next one to three years, Europe and Ukraine will likely import natural gas from us. This would alleviate their energy concerns. It would increase profits for U.S. businesses. And it could cripple Russia's economy – which depends heavily on revenue from natural gas sales.
Even if this LNG bill does not become law, the 23 pending applications will still get approved. It will just take a few more years.
But no matter what happens, KBR and Chicago Bridge & Iron are still buys here. I've touted both companies several times in Growth Stock Wire. CBI has been a big winner. KBR is down after reporting a weak quarter in February due to several delayed orders – creating a great buying opportunity.
These names could see a huge short-term boost if this bill gets approved. If not, they are still solid long-term growth plays trading at a discount to the overall market.
Frank says his "favorite trade for 2014" is about to break out... These stocks "should easily outperform the market going forward," he writes. "If you have no exposure to this sector, I suggest buying a few names today..." Learn more here.
Frank also recently urged investors to increase their exposure to three other market sectors... "Most names in these sectors have moved higher," he says. "But this is just the beginning..." Get all the details here.
Low interest rates are driving utility stocks... sector fund XLU soars to a new all-time high.
Dividend-paying cigarette companies continue their long-term uptrend... fresh highs for Altria and British American Tobacco.
Royal Gold tops a short list of stocks up 40%-plus so far in 2014.
Japanese automaker Toyota Motor breaks down to a 52-week low... the company is recalling more than 6 million vehicles.