The Motley Fool

Santos, Origin, Oil Search, Woodside: Gas outlook paints a rosy picture

AGL Energy’s (ASX: AGK) boss Michael Fraser has, according to a report in The Australian newspaper, warned that gas prices on the East coast of Australia could reach $10 per gigajoule as liquefied natural gas (LNG) is exported into higher priced Asian markets, leaving Australian-based power generators and industrial users struggling to compete with foreign buyers.

It’s a concern which has been echoed by a number of industrial users including Bluescope Steel (ASX: BSL) and Incitec Pivot (ASX: IPL), both of whom are members of lobby group Manufacturing Australia.

Mr Fraser’s warnings come as the Sydney Morning Herald also reports that demand for Australian LNG is set to surge. The SMH reports that research conducted by the National Bureau of Asian Research in the USA suggests China will be inclined to source its gas supplies from Australia and Canada ahead of the USA due to strategic concerns over reliance on the USA for energy supplies.

Both reports paint a rosy picture for Australia’s major listed gas producers. An outlook of higher prices and heightened demand bode well for Santos (ASX: STO), Origin Energy (ASX: ORG), Oil Search (ASX: OSH) and Woodside (ASX: WPL) and their respective LNG projects which are expected to experience significant ramp-up in production volumes over the next few years.

Foolish takeaway

The past 12 months has seen the share prices of Woodside and Oil Search increase by roughly 15% which is less than the 21.5% return achieved by the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO). Meanwhile Santos’ shares have rallied 33% and Origin’s share price is up 38%.

The market is well aware of the step-change expected to occur in the earnings of these four producers as their respective LNG projects ramp-up to full production. For investors the major question mark hanging over valuing each of these stocks is what the average gas price will be in the future?

Looking to add some supercharged investment ideas to your portfolio?

Interested in our #1 dividend-paying stock? Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

Motley Fool contributor Tim McArthur owns shares in Origin Energy.

FREE REPORT: Five Cheap and Good Stocks to Buy now…

Our Motley Fool experts have FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.7% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.

CLICK HERE FOR YOUR FREE REPORT!