The election is over. Donald Trump won. The new regime will have a massively different ideology and policy approach than the last one. This significantly changes the trajectory of the market, and investors are speculating about the prospects of a Trump energy boom.
The market had been wavering between anticipation of a slower economy with lower interest rates and a strong economy with still high rates. The strong economy scenario got a huge shot of adrenaline.
Investors perceive that the new administration will deliver stronger economic growth than the previous one, primarily through deregulation and tax cuts. Although interest rates spiked higher since the election on that expectation, the market views the revised prognosis as bullish, so far.
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A new administration with drastically different policies will take control in January. Those pronounced policy changes will have a significant effect on different sectors and can’t be ignored.
The most obvious sector beneficiary of the new administration is energy. A mainstay of the new economic strategy is to unleash domestic fossil fuel production to its fullest extent. The regulatory environment is likely to change drastically in a way that encourages more fossil fuel production.
Of course, the policies may not be good for many energy company stocks. More production of oil and gas means lower prices. Lower energy prices mean lower profits for commodity-sensitive companies. But there is one area in the energy realm where the new policy approach is all good, natural gas exports.
The U.S. has recently become the world’s second-largest exporter of natural gas. Exporters ideally sell cheap American gas overseas where it fetches a much higher price. More production and cheaper domestic prices are ideal for exporters. At the same time, the new administration is likely to encourage as much natural gas exportation as possible.
Clean energy is the future. But not yet. This country and the world still rely on fossil fuels for more than 80% of energy needs, and clean energy alternatives only represent a very small percentage of energy use. Fossil fuels will likely remain the dominant source for decades.
The term “fossil fuels” includes oil, coal, and natural gas. But natural gas is head and shoulders above the others because it is cheaper, more abundant, and much cleaner burning. Natural gas is increasingly seen as a bridge to a clean energy future that can provide stability for the world’s energy needs in the interim while reducing carbon emissions.
A new report from Gas Exporting Countries Forum (GECF), an industry think tank based in Qatar, estimates that global natural gas demand will soar 34% between 2022 and 2050. The think tank also expects the strongest growth in the natural gas realm to be liquid natural gas (LNG), the cleanest burning natural gas type of all.
GECF expects LNG to overtake long-distance pipeline trade on a global scale by 2026 and account for 64% of all traded gas by 2050. LNG demand is expected to more than double between 2022 and 2050.
A Natural Gas Stock for the Trump Energy Boom
Cheniere Energy, Inc. (LNG)
Houston-based Cheniere Energy is primarily engaged in the liquefaction and export of natural gas. The company also markets and pipes liquid natural gas (LNG) and its facilities are located near the Gulf of Mexico in Southwest Louisiana and South Texas.
Cheniere owns and operates two major liquefaction facilities including the Sabine Pass Terminal, which it owns through its stake in Cheniere Energy Partners (CQP), and the Corpus Christi Terminal, which is currently undergoing a major expansion. The facilities provide the bulk of revenues, but it also markets natural gas through Cheniere Marketing and owns the Creole Trail Pipeline.
Here’s the deal. Because of new technologies in horizontal drilling and hydraulic fracturing (fracking), massive supplies of previously irretrievable oil and gas deposits trapped in shale rock formations throughout the country can now be accessed. As a result, this country became the world’s largest producer of natural gas more than a decade ago.
This country was able to produce far more natural gas than it could currently use. At the same time, they are starving for the stuff in other parts of the world, and the gas is cheap here and expensive there. It seemed logical to sell natural gas overseas at a huge profit. But that was easier said than done.
While natural gas can be piped across this continent, you can’t pipe it across the oceans. To export large quantities of natural gas to places like Europe and Asia, gas must be converted to liquid form, put on to tankers, and shipped. But since we didn’t have an abundance of natural gas before, there were no massive liquefaction and export facilities in this country. That’s where Cheniere came in.
Sabine Pass was the first major facility built in this country to liquify and export natural gas. Cheniere only began operations in 2016 and it’s already the largest producer of LNG in the United States and the second-largest LNG operator in the world. Cheniere has also achieved the following:
- 11% plus of all global NLG supply.
- 8% of U.S. natural gas production processed daily.
- 39 countries and regions delivered to.
- #1 supplier of LNG to Europe.
- Major supplier to Asia.
But this is just a snapshot in time, and Cheniere is still young and expanding. The Corpus Christi Terminal currently has three trains (NG liquefaction systems) and seven more are currently under construction, and most of the capacity is expected to become operational in 2025 and 2026.
Capacity will continue expanding beyond next year to meet the growing demand. Cheniere was already the number one supplier of LNG to Europe in 2022 and 2023. It is expected to supply the bulk of demand growth in China in the years ahead.
Changes are already beginning. Just since the election last week, officials at the European Union have already expressed interest in getting natural gas from the U.S. instead of Russia. That would be a huge additional market.
The market seems to agree that LNG should be a beneficiary of the new administration as it’s feeling the full effects of the Trump energy boom with the stock up 15% in the week since the election.
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