Natural gas is considered a relatively cleaner fuel because it produces less emissions than coal or petroleum to generate the same amount of energy. Additionally, it is an economical energy source. These properties have contributed to the increasing use of natural gas across different sectors, and its demand is expected to continue growing in the coming years.
The stock of top natural-gas-focused midstream operator The Williams Companies (WMB 0.30%) offers an attractive way to participate in this expected growth. Let's see why.
A steady business
There are several reasons to like Williams stock. To begin with, unlike oil and gas producers, Williams Companies' earnings are relatively stable, and steady earnings make the stock's 4.8% yield attractive for dividend investors.
Williams' contracted transmission capacity and gathering volumes have grown steadily over the last six years. The capacity on its pipelines is largely reserved, and the contract rates are typically not dependent on commodity prices. That explains the steadily growing adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) in the chart above, despite big fluctuations in oil and gas prices.
A top reason behind the steady growth in Williams' gathering and transport volumes is the strategic location of its assets.
Around 80% of Williams' gathering volumes come from the Northeast region -- including the Marcellus and Utica Shale regions -- and the Haynesville Shale. These regions account for around 90% of the remaining economically-accessible natural gas reserves in the U.S. For these reserves, producers can earn a profit if Henry Hub natural gas prices are over $3.50 per thousand cubic feet (mcf). Some of these reserves are much more economical, with break-even gas prices as low as $2.75 per mcf.
Stable long-term growth
Not only is Williams Companies generating steady earnings, but it can also continue doing so. The expected demand growth for natural gas should benefit it in the decades to come.
Williams Companies estimates that more than half of the growth in global energy demand through 2040 will be met by natural gas. Global energy demand could rise from 559 quadrillion British thermal units (QBtu) in 2015 to 660 QBtu in 2040. Williams estimates that of this 100 QBtu growth, more than half -- or 53 QBtu -- will be met by natural gas.
By comparison, the share of coal in the global energy mix will steadily fall.
Overall, a steady growth in volumes and earnings, strategically located assets, a positive outlook for natural gas demand growth, and a solid dividend yield make Williams Companies stock attractive right now.