4 Ways to Play the Coming NGL Export Boom

Natural gas liquid production is soaring due to America's gas boom. Exports of NGLs are set to possibly double by 2020 and the following four MLPs are positioning themselves to cash in on the coming bonanza.

May 4, 2014 at 4:39PM

America's shale boom has resulted in record oil and gas production in recent years. An additional benefit has been the boom in NGLs (natural gas liquids) such as ethane, propane, butane and pentane. These chemicals can be used as fuels but are more valuable as petrochemical feedstocks for things such as plastics. Recently, growth in gas production (and NGLs) has been so prolific that a lack of infrastructure for storage and transportation has resulted in a massive glut of NGLs such as ethane. The price has dropped so low that producers have been forced to "reject' it, meaning allowing it to remain within natural gas (as opposed to refined out and sold as a valuable chemical feedstock).

Ethane rejection was about 200,000 bpd (barrels/day) in 2013 and is projected to grow to 450,000 bpd in 2014. This represents immense wasted opportunity because global demand for ethane is high, especially in Europe. The midstream MLP industry is stepping up to fill the need for infrastructure with over $70 billion in investments in petrochemical complexes along the Gulf of Mexico. This article highlights four high-quality MLPs that are preparing to cash in on the rich opportunities awarded by America's continuing energy revolution.

MarkWest Energy Partners (NYSE:MWE) is one of the largest midstream providers of processing, storage and gas transportation in the prolific Marcellus and Utica Shale areas of New York, Pennsylvania, Ohio, and West Virginia. It has 1.6 Bcf/d (billion cubic feet/day) of natural gas processing capacity (20% of 2013 Marcellus production) and is investing $1.6 billion in 2014 on a 16 facility investment program (nine processing plants with 1.92 Bcf/d capacity and seven de-ethanator/fractionators).

The partnership is partnering with Sunoco on two ethane pipelines. These are the Mariner West (50,000 bpd capacity running to Ontario) and the Mariner East (70,000 bpd running to Philadelphia export terminals). 

A further joint venture is with Kinder Morgan and Targa Resources on a repurposing of Kinder's Tennessee pipeline system. A 1,000 mile pipeline will transport NGLs from the Marcellus shale to the Gulf for export and petrochemical production. The initial capacity will be 150,000 bpd but expandable to 400,000 bpd.

Due to its large investments in Marcellus and NGL transportation infrastructure, management is guiding for 27%-43% distributable cash flow (DCF) growth in 2014. Combine this with analysts estimates of 60% EPS growth over the next decade and the already generous yield of 5.3% is likely to grow strongly for years to come.

Kinder Morgan Energy Partners (NYSE:KMP) is the fourth largest energy company in America with 68,000 miles of pipelines serving every major oil/gas shale formation, including the hyper-prolific Marcellus shale (production projected to increase 20-fold between 2007 and 2017-2018). The investment thesis for Kinder Morgan goes far beyond the joint venture with MarkWest and Targa.

According to the latest investor presentation, Kinder's project backlog, which increased by 16% in the last quarter (to $16.4 billion), doesn't include investments in the Marcellus shale. Given the historic opportunities presented by this shale formation, this likely means that the company's project backlog will expand drastically over the next three to four years as Marcellus production continues to boom and demand for infrastructure reaches a fever pitch.

Kinder Morgan Inc (NYSE:KMI) is the parent company and general partner of Kinder Morgan Energy Partners. The investment thesis here is that as the MLP pursues aggressive expansion into NGL transport and the Marcellus shale, the parent company will benefit from both increased IDR (incentive distribution fees) and distributions. This will drive dividend growth (KMI is a corporation not an MLP) superior to KMP's 5%-6%. Management is guiding for 8% growth yet just raised its dividend by 11% after announcing record quarterly earnings. With a track record of beating distribution/dividend guidance (13 out of the last 14 years) and a 5% yield, this stock represents one of the best dividend growth opportunities in America.

Enterprise Product Partners (NYSE:EPD) is the second largest midstream MLP in America and a major player in NGL transport and exports. With the partnership projecting ethane demand to increase by 600,000-750,000 bpd by 2020 and major export opportunities to western Europe and Asia, management is investing into two major NGL pipelines.

The first is the ATEX pipeline, which runs 1,230 miles from the Marcellus shale to the Gulf Coast. Its starting capacity is 125,000 bpd but is expandable to 265,000 bpd. It came online in January 2014 but two NGL fractionators (which refine out NGLs) are coming online by Q3 2014. The pipeline has 15-year contracts in place.

The second project is the 425,000 bpd Aegis ethane pipeline, which runs 270 miles from Texas to Louisiana where it will supply six petrochemical plants. This pipeline will be complete in Q2 2015 but is already contracted for over 200,000 bpd.

Foolish takeaway
The coming NGL export boom stands to make billions in long-term, steady cash flows for the above MLPs. Income investors can participate in the coming prosperity through investments in these partnerships. With generous yields and strong distribution growth prospects these investments maximize the likelihood of long-term market outperformance.

3 stock picks to ride America's energy bonanza
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 


Adam Galas has no position in any stocks mentioned. The Motley Fool owns shares of Kinder Morgan. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information