The U.S. Geological Survey just released its first official estimate for the amount of undiscovered, technically recoverable natural gas in the Utica Shale. We can now add the Utica's 38 trillion cubic feet to the 84 Tcf in the Marcellus Shale, and the 84 Tcf in Wyoming's Green River Basin. That's a lot of natural gas, folks, and seemingly indicates that despite low gas prices, the nation's nat-gas boom is bound to continue.
U.S. natural gas production has increased from 1.45 trillion cubic feet per month in 1986 to 2.53 Tcf per month in 2012. Nationwide, the booming U.S. shale plays are estimated to hold 482 Tcf of gas recoverable gas. Texas alone has 80.4 Tcf in natural gas reserves.
In fact, according to the Energy Information Administration, 2010's proved reserves of natural gas increased by the highest amounts ever recorded. The agency reported an addition of 33.8 Tcf of wet gas, which includes natural gas liquids.
Forget the producers
Despite all that gas, it's hard to think about buying into a natural gas producer when the price of natural gas, the very thing crucial to those companies making money, is so low right now. Instead, let's take a look at the companies that transport natural gas all across the country. They also gather it, store it, process it, separate out all the different natural gas liquids – in short, they do everything but produce the stuff. They are the midstream industry.
The energy boom is producing so much gas there simply isn't enough midstream infrastructure to handle it all. We need more pipelines, more fractionation facilities – more everything, really. Natural gas production volumes are going up all across the country, and when volume goes up, midstream revenue goes up, too.
A great option
Enterprise Products Partners (NYSE: EPD ) is the perfect way to play the U.S. natural gas boom. The company operates more than 50,000 miles of pipeline in North America, the majority of which transport natural gas and natural gas liquids. Enterprise's ever-growing asset footprint also includes natural gas and NGL storage facilities, as well as processing and fractionation plants.
Since its IPO in the summer of 1998, Enterprise has grown its asset base from $715 million to $34 billion. For a quick king of the midstream hill comparison: by market-cap, it's bigger than rival Kinder Morgan (NYSE: KMI ) . Ironically, by enterprise value, Kinder Morgan is tops.
Enterprise has an $8 billion slate of projects coming online over the course of the next few years, including $3.2 billion coming online by the end of 2012 alone. Much of its planned capital expenditures are targeted primarily at the booming Eagle Ford shale play, but plans also include a massive Gulf Coast propane dehydrogenation facility scheduled to come online in 2015 – a project with no associated commodity risk.
Enterprise is focused on its future, and investors stand to reap the benefits.
Risks to be aware of
There are two main risks facing Enterprise. The first is not specific to the company's operations, but affects the entire midstream industry, and that is the growing public opposition to pipeline projects. Protests, lawsuits, and media backlash can all have a negative effect on growth. Companies like Energy Transfer Partners (NYSE: ETP ) are going as far as to keep a tight lid on major projects in order to maintain a low profile. Enterprise will dodge much of this risk by focusing on growth in the energy friendly region of Texas, but it is a factor to consider nonetheless.
Second, though certain projects are more or less free from commodity risk, Enterprise does have an immense NGL processing and fractionation business, which can leave it more exposed to commodity risk than if it were solely a pipeline operator. In the face of a sustained NGL price collapse, Enterprise could see its margins crunched.
Gift that keeps on giving
In 2010, Enterprise merged with Enterprise GP holdings, effectively ending incentive distribution rights to its general partner. This simplified structure results in a lower cost of capital and an increase in financial flexibility for the partnership.
Distributions to unit holders, however, continue to grow. The second quarter of 2012 marked the partnership's 32nd straight quarterly distribution increase.
The Interstate Natural Gas Association of America, or INGAA, estimates that over the next 25 years we will need a whopping $200 billion of midstream infrastructure development to handle growing gas supplies. The system needs to accommodate the additional capacity of 43 billion cubic feet of natural gas per day that is expected to come online by 2035.
And that's just dry gas! When you factor in natural gas liquids and oil, you're looking at an additional $45 billion of infrastructure investment.
Many of these new projects will not be built without customer agreements in place, which means guaranteed, reliable income for midstream operators. And that's something every investor loves to hear.
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