Forget 'Saudi America' - Here Comes 'Qatari America'

Since 1997, the Arab state of Qatar has dominated the liquefied natural gas market, and today holds the title of world's largest supplier of the fuel.

In a new note titled, "Forget Saudi America, What about Qatari America?", AllianceBernstein's Bob Brackett proclaims the advent of "Qatari America," saying the U.S. LNG market is set to explode.

First: LNG is basically plain old natural gas that's easier to ship (it gets turned back into natural gas when it reaches its destination), and has the same uses.

Anyway, Brackett writes that we're either in the middle or beginning of a boom:

2013 has proven to be a momentous year for the global LNG industry, with a record number of North American LNG projects being contemplated as companies seek to arbitrage the natural gas pricing differential between North America and the rest of the world. The economic incentive is clear -North American LNG export is feasible due to lower cost of production (a result of both high EURs vs. results internationally and a developed oilfield services industry) and robust international demand for gas.

The Department of Energy must approve all LNG exports, and the number of projects getting the okay has actually slowed as federal regulators weigh gains to the broader economy from more exports against rising prices for consumers.

But Brackett using data from a recent DOE report for various production and export scenarios, Brackett shows that under any scenario there is a net gain to the welfare of the average U.S. household over the long term:

Each bar represents a different recovery and export scenario - but they're all positive.

The approval bottle-neck is thus causing the U.S. to miss out on a big opportunity, Brackett says:

If we were US energy policy makers, we'd recommend the approval of ~1.5-2 Bcfd of export capacity each year. We believe this level represents an amount of shale gas production growth that can be achieved with a reasonable, but not too high, price signal that would be palatable to consumers and producers alike. In addition, approving 1.5-2 Bcfd of export capacity (which would likely take ~3-4 years to build) implies that only 5-8 Bcfd of export growth would be in the queue at any point in time, allowing the government to monitor price impacts as exports layer-in (and apply brakes if needed).

Brackett says U.S. natgas prices are going to hover around $4 given current production trends, giving it a huge cost advantage over direct competitors:

Not surprisingly, the net benefits are the highest when the cost to produce shale gas in the US is the lowest. And we believe the US is going to have plenty of shale gas supply produced at a low cost.

As bullish as this all seems, things probably aren't going to change overnight, though. Energy Secretary Ernest Moniz says he's basically aware of all this, but that the Department will continue to process applications on a case-by-case basis.