Thursday, April 8, 2010

JPMorgan (NYSE:JPM) Deal with Cheniere Energy (AMEX:LNG)

JPMorgan Natural Gas Deal with Cheniere Energy

A number of banks have been moving into the natural gas sector, and that's true with JPMorgan (NYSE:JPM), as evidenced by their deal with (AMEX:LNG).

The deal entails importing liquefied natural gas, which while having long term potential, in the short term will put downward pressure on teh profits of JPMorgan.

I'm a long-term investor, so that doesn't bother me in the least, but for those only looking at the short-term, it will be a challenging deal to absorb.

This is the result of the continuing fall of natural gas prices in the United States, which shows no sign of abating any time soon.

How the deal will work, is JPMorgan will jointly buy natural gas cargoes with Cheniere from overseas markets and resale them in the U.S. market. Both will share in any profits or losses incurred from the arrangement.

With the growing number of gas-shale opportunities within the United States, it is becoming more difficult to acquire import loads at a price that will make sense or be profitable.

Adding the balance sheet of JPMorgan to the mix does make it more probable they can make larger acquisitions which could result in lower prices which would make sense at that time.

Either way, this is a long term play, which will demand a lot on the domestic natural gas supply in the U.S., which shows no sign of abating.

JPMorgan competitors like Citigroup (NYSE:C) and Morgan Stanley (NYSE:MS) have also entered the natural gas market in anticipation of growing demand. But as long as supply is so available, this shouldn't do much to increase the profits at the companies, but does position them for the day when the supply/demand situation changes.

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