Plummeting Temperatures and Spiking Natural Gas Prices Bode Well For Some Companies

The extreme cold snap that traveled across the United States led the spot price of natural gas to spike to a 10 year high—that's actually good news for some companies.

Jan 21, 2014 at 2:58PM

The United States is in the midst of an energy renaissance, with plentiful natural gas helping to lead the way. That left natural gas prices near historical lows and companies switched to the fuel as a way to save money and/or reduce pollution. The swift price spike during the recent cold spell, however, highlights a key problem that only a few companies can solve—supply may be tighter than people realize.

When things go right
The northeast is, perhaps, the poster child for natural gas conversion. The region's grid operator notes that at the turn of the century natural gas accounted for about 15% of the region's power. Today it makes up over 50% of the total and looks like it will keep heading higher. If fact, the grid operator believes this creates a systemic risk to the grid.

But utilities aren't the only ones switching to natural gas. For example, trash haulers Waste Management (NYSE:WM) and Republic Services (NYSE:RSG) are both in the process of switching material portions of their fleets over to natural gas. Waste Management has over 2,000 natural gas vehicles. The company estimates it avoids the purchase of 8,000 gallons of diesel a year for each natural gas truck. Republic doesn't have as many natural gas trucks, but about half of its new purchases are natural gas powered.

The success of Waste Management and Republic Industries with their natural gas shift has provided proof for other companies considering the move. For example, United Parcel Service (NYSE:UPS) has pledged to buy over 1,000 long-haul trucks powered by natural gas. It estimates that the move could save it up to 40% on its fuel costs. Who wouldn't jump at that?

The problem in all of this is that as demand builds across the country, the abundant supply that's kept prices low gets eaten up. A few days of extreme cold leading to 10-year high spot prices shows just how tight the gas market is starting to get. And demand is only set to go higher. So UPS' bet on natural gas is great when prices are low, but if prices move higher those saving start to go away. That's true for Waste Management and Republic, too.

Images

Getting things where they have to go
One of the big issues in the natural gas space is actually getting the fuel from where it's drilled to where it's used. And that's the purview of pipeline companies. For example, industry giant Enterprise Products Partners (NYSE:EPD) has over 21,000 miles of pipelines dedicated to natural gas.

Increased use of natural gas not only allows Enterprise to keep building and buying pipelines, but it also keeps the volumes up on what it already owns. Since the limited partnership is basically a toll taker, the more volume the better. PVR Partners (NYSE:PVR) shows just how much potential there is.

The company opened its Eastern Midstream business in 2010 serving one customer. By the end of the year it had three wells connected to its line and volume of 25 million cubic feet per day. At the end of 2013, PVR had 15 customers and nearly 320 wells. Over 1.8 billion cubic feet per day of natural gas was flowing through its pipes—up 60% compared to 2012 volumes.

An opportunity
Transporting gas across the country and just getting it from the well head to the big pipelines are both vital steps in getting the fuel to market. Although owning natural gas pipelines isn't exciting, the fuel's price spike shows that the increasingly in-demand fuel could provide this boring sector with years of growth. Indeed, if a few cold days can push prices to their highest levels in a decade, there's clearly more need for natural gas infrastructure and more good news to come for pipeline operators serving the natural gas sector.  

You've probably heard about the "Internet of Things". Why not invest in it?

There’s a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Reuben Brewer has a position in Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners L.P., Republic Services, United Parcel Service, and Waste Management. The Motley Fool owns shares of Waste Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 9:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers