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Cheniere Facility to Lessen Gas Woes

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Energy company Cheniere Energy, Inc. (LNG) announced that it will get the much needed financing to set up the country’s first liquefied natural gas export facility in Louisiana. Eight banks have assured a cumulative $3.4 billion to develop the export facility.

The export facility will be able to export 1.1 billion cubic feet a day by the end of 2015 and will surely ease out the mounting stock piles of natural gas. Moreover, the export of liquefied natural gas will correct the declining natural gas prices in the United States.

United States has abundant reserves of natural gas and its clean burning nature makes it environmentally friendly. However, improved drilling techniques from oil and gas operators in addition to its natural abundance led to an oversupply glut and plummeting prices in the market.

Despite the soft drilling approach undertaken by many operators, the natural gas reserves held in underground storage in the lower 48 states rose by 33 billion cubic feet (Bcf) for the week ended July 6, 2012, above the guidance range (of 24–28 Bcf gain) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Companies Inc. (MHP).

Natural gas prices dropped 63% from the 2011 peak of $4.92 per million Btu (MMBtu) in June to a 10-year low of $1.82 in late April 2012 (referring to spot prices at the Henry Hub, the benchmark supply point in Louisiana). The declining natural gas prices forced the U.S. oil and gas operators to trim down natural gas activities and concentrate on liquid operations.

We believe this new export terminal will benefit the U.S oil and gas operators, whose major source of revenue comes from natural gas activities. The export market will open new avenues for natural gas skewed operators like Chesapeake Energy (CHK), Devon Energy Corporation (DVN) and SandRidge Energy Inc. (SD) among others.

We believe this liquefied natural gas export facility armed with the necessary funding and government approval can act as a game changer in the U.S. natural gas industry. Increasing global demand will help to bring down the U.S. natural gas stock pile and at the same time assure a fair return to the producers of natural gas. Natural gas, despite the weak current prices, is expected to fuel most of the power needs in the coming decades.

Based in Houston, Texas, Cheniere Energy is an energy company mainly dealing with liquefied natural gas related businesses. Cheniere Energy presently holds a Zacks #3 Rank, which translates to a short-term Hold rating.

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