- Abdullah bin Hamad al-Attiyah, Oil Minister of Qatar

Qatar is already taking advantage of this situation. And they're making no qualms about their motivation: make as much money as possible.

But Qatar is just one small player in the next monster trend in the energy business. The situation is getting bad, real bad. The profit opportunity, however, is just as big as the situation is bad.

Already Exxon Mobil, Merrill Lynch, BHP Billiton, and dozens of others are getting in on the action. Now, as we put all the pieces of this complicated puzzle together, you can take your piece of the action, too.

Decades in the Making

For decades we've heard it's coming -- a completely new source of energy. But I'm not talking about some economically questionable alternative energy source or something with numbers that only "work" with lavish government subsidies. I'm talking about liquefied natural gas, or LNG.

The LNG market has been on the verge of a major breakout, seemingly for years. But the numbers just never made sense. It has taken years of infrastructure buildup to lay the foundation for the industry. And with oil companies required to shell out at least $5 billion just to build an LNG plant, they just weren't going to take too big of a gamble.

That, however, is all rapidly changing.

Exxon Mobil, Merrill Lynch and China National Oil Company have combined to commit $30 billion to investing in new LNG facilities over the next five years. BHP has committed $25 billion for new LNG facilities in Australia. Worldwide, LNG investments are expected to eclipse $100 billion over the next decade. Warren Buffett, Shell, BP and Gazprom are all betting big on LNG.

Together, they're all helping to nurse the LNG industry from infancy to maturity in short order. And with all these companies placing huge bets, you can bet they're laying the foundation for a major win.

But the LNG market is still in its relative infancy. As a result, most investors just don't understand all the details... yet. But that's exactly what is creating an opportunity in the next big trend in energy.

We've got to understand three aspects of the booming LNG industry in order to profit from this situation. First, we've got to look at the basic nuts and bolts of the industry (how natural gas is turned into LNG and so forth). Second, we've got to realize natural gas will finally become a truly global commodity and the highest bidder will get the gas. Third, we've got to find the bottleneck -- and who has is developing the solution. And that's where we'll put our money.

Natural Gas Goes Global

The United States has been getting natural gas on the cheap for decades. Most natural gas consumers (primarily power companies and utilities) have been paying very low prices for natural gas compared to the rest of the world. Despite the recent doubling in natural gas prices, U.S. utilities can still buy it for around $11 per million BTU (MMbtu).

The rest of the world is paying much higher prices. Spain pays $13 per MMBTU, Korea and India pay $14 per MMBTU, and Japan pays the highest price of about $15 per MMBTU.

The cause of the wide price range is pretty simple. Natural gas is produced and consumed locally. For instance, natural gas in the U.S. is produced from a well and transported via pipeline to the end-user.

Although there are some fairly long offshore pipelines, building a pipeline across the Pacific or Atlantic Oceans is technically and economically unfeasible. As a result, Asian, European, African, Australian and North American natural gas prices can vary widely. There was no way to trade natural gas on a global level.

The growth of the LNG industry is already starting to change all that. Japan recently paid $19 per MMBTU of LNG and China and Europe are also paying top dollar for LNG. But theyÆre happy to do it. The price may seem high now, but the long-term LNG contracts these countries have signed will save them a lot more money as natural gas prices continue to rise over the long term.

There is no transparent market for LNG. The LNG market is made up of privately negotiated contracts between suppliers and consumers. That lack of transparency is helping to keep this boom quiet for the time being.

Links in the Chain

The LNG process is a fairly simple one. The first stage is natural gas production. The natural gas production process for LNG is the same used around the world for more than a century.

The second step of the process is liquefaction. This is unique to LNG. Liquefaction is when natural gas is chilled so cold that it turns into liquid form. After it's turned into a liquid, it can be pumped into the worldwide fleet of LNG tankers and transported around the world.

After transportation, LNG needs to be turned back into gas in a process known as regasification. Performed under highly controlled conditions, regasification allows the LNG to warm slowly. Afterwards, the natural gas produced can be shipped via the pipeline network already in place around the world, whether it's in Japan, California, Europe or anywhere else.

The LNG process is like a chain with a few different links that have to operate together. But if one of those links isn't strong enough, the entire industry can be brought to its knees.

The Weakest Link

LNG infrastructure has been under construction for some time. But the buildup was uncontrolled, and now a huge bottleneck exists. Consider this, there are currently 40 regasification plants around the world, but there are only 15 liquefaction plants.

The supply-demand situation is all out of whack. Some of these multibillion-dollar facilities are sitting idle while others are running at 15% capacity. When you consider the energy giants that built them are sitting on huge losses, it's no wonder they're committing billions of dollars to right the situation.

It's a huge bottleneck for LNG supply that is going to take $100 billion and years to get fixed. And when that kind of money is flowing in, there's bound to be an investment opportunity somewhere.

Bet on the Bottleneck

That's why I believe the bottleneck in liquefaction is the best way to play the coming global boom in LNG. All the fundamentals are there and investing in this sector offers far superior returns over the next two years, five years and beyond.

Of course, we've seen fundamental situations like this appear before, and unscrupulous companies and countries profit handsomely from them. Right now, one world leader is already eyeing the situation and playing his hand. Learn how he's doing it -- and how you can profit from it all.

 

 

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