Natural Gas Goes Global

I’m writing to you from Panama today where I’m attending the Sovereign Society’s Total Wealth Symposium. I’ll be here all week, and look forward to catching-up with many of our council of experts who traveled here from Europe, Asia, and elsewhere to bring their best investment and asset protection ideas to this conference.

Driving in from the airport yesterday it didn’t take long to see that the global energy crisis is hitting Panamanians pretty hard too. Gasoline here is over $4 per gallon, and according to our Panamanian cab driver – that’s producing intense sticker-shock at the pumps for consumers here.

Remember, Panama’s per-capita income isn’t on par with the U.S. so the average Panamanian is shelling out a lot more of his or her disposable income on fuel these days. As a consequence you don’t see many SUVs on Panama’s roads these days.

Crude Oil Isn’t the Only Energy Source Poised to Soar

I noticed that crude oil hit yet another record high overnight above $127 a barrel. With Sumer driving season getting ready to kick into high gear in a few weeks, we will soon be dealing with gas prices north of four bucks a gallon in the States too. It’s just a matter of time.

Another energy sector investment that’s been steadily climbing in price is natural gas, which I’ve written about before.

In addition to higher prices at the pump, there are good reasons to believe that natural gas will keep climbing too, even though prices in the U.S. have about doubled since last August. The problem here seems to be a familiar one: increased global competition for a scarce resource.

Up until the past few years, natural gas was a regional commodity. Most gas was consumed close to where it was produced. But now the market for natural gas is going global.

Asian Importers Have a Big Appetite for LNG

This increased global trade is made possible thanks to investment in high-tech liquefied natural gas terminals (LNG), that chills the gas to -260 degrees Fahrenheit, converting it to a liquid form. That makes it much more cost-effective for LNG tankers to transport gas across the world’s oceans.

Energy hungry countries in Asia, especially South Korea and Japan, have stepped up LNG imports in a big way, and they’re willing to pay-up for it. In fact, U.S. natural gas prices are pretty low by global standards, averaging about $10 per million BTUs in New York. In Japan and Korea, they’re willing to pay $14 for the same amount of gas. India is bidding $13.70 for LNG imports.

The inevitable result is that more U.S. gas is getting shipped overseas. LNG imports to the U.S. are also declining rapidly, as global producers prefer to sell to the highest bidders in Asia and elsewhere. Monthly imports of LNG to the U.S. have fallen 60% to 70% from peak levels of nearly 100 billion cubic feet in mid-2007.

With imported supplies falling this fast, and domestic natural gas producers able to sell at such a premium overseas, it’s just a matter of time before natural gas shoots higher in price too.