While the price of natural gas has cooled off a little bit in recent weeks, it has been red hot this year. The average price in the U.S. has more than doubled since the beginning of the year. The main catalyst has been concerns about having enough supply to meet rising demand, especially from liquified natural gas (LNG) exports.   

Those higher prices are a boon to natural gas companies. Crestwood Equity Partners (NYSE:CEQP) and Cheniere Energy (NYSEMKT:LNG) are two natural gas stocks that appear ideally positioned to prosper in the current market. Both offer a lower-risk way to benefit from improving conditions in the natural gas market.

Natural gas flames.

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Stability with upside to higher gas prices

Crestwood Equity Partners is a master limited partnership (MLP) focused on operating midstream infrastructure. The company has a diversified footprint as it operates in most of the country's top production basins. It handles a variety of commodities, getting 48% of its cash flow from natural gas, 16% from natural gas liquids (NGLs), and 36% from oil and water. Meanwhile, long-term fee-based contracts support the bulk of its earnings (83% in 2021). The company therefore produces relatively steady cash flow.

However, its business model does provide some upside, considering that 17% of its earnings come from variable-rate contracts. With natural gas prices higher, it should generate more revenue from these activities.

Meanwhile, the company recently increased its leverage to natural gas by agreeing to acquire Oasis Midstream Partners (NASDAQ:OMP). The deal will triple the size of its natural gas processing business in the Williston Basin, enabling it to process additional volumes from producers as they increase production and capture more flared gas. That enhances its ability to continue benefiting from higher gas prices in the future.

That growing gas-fueled cash flow will further support Crestwood's monster distribution that currently yields 8.8%. The company plans to increase that payout by 5% when it closes the Oasis deal next year and should still generate enough cash to cover it by two times. That will give it the funds to invest in expansion projects while maintaining a conservative balance sheet. 

Leverage to LNG

Cheniere Energy is benefiting from increased demand for LNG. The company has signed three long-term LNG sale and purchase agreements in recent months, supporting the likely final investment decision for Corpus Christi Stage 3, which it expects to sanction next year. The 9-train project is a significant long-term growth driver for the company. 

Meanwhile, the company's existing LNG business is firing on all cylinders. Cheniere recently raised its 2021 earnings guidance while reconfirming its forecast to generate between $1.8 billion and $2.1 billion of distributable cash flow. It also introduced its 2022 forecast, estimating that cash flow will rise to a range of $3.1 billion to $3.6 billion as it benefits from the upcoming completion of Train 6 at its Sabine Pass facility. 

That rising cash flow -- primarily supported by long-term LNG sales agreements -- led the company's board to approve a comprehensive capital allocation plan. It included the initiation of a dividend, a plan to repurchase $1 billion of stock over the next three years, and its intention of repaying $1 billion of debt per year through 2024 to achieve an investment-grade credit rating. That plan also supports the company's ability to invest in Corpus Christi Stage 3. When combined with its shareholder-friendly moves, that long-term growth catalyst could create a lot of value for investors in the coming years. 

Lower risk ways to play natural gas

Natural gas can be a volatile commodity. However, it's an increasingly vital fuel to the global economy since it burns cleaner than oil and coal. Because of that, demand for gas should continue rising, potentially supporting gas prices in the future. That upside would benefit the already stable operations of Crestwood Equity and Cheniere Energy, which makes them great natural gas stocks to consider buying these days.

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.