Natural gas demand is growing briskly. A big driver is surging demand for liquefied natural gas (LNG) in Asia and Europe. The cleaner-burning fossil fuel is crucial to helping reduce global emissions while increasing energy security.
Surging natural gas demand is driving the need for additional infrastructure. Three top energy stocks to play the LNG boom are Kinder Morgan (KMI -0.70%), Cheniere Energy (LNG -0.73%), and Brookfield Infrastructure (BIPC -3.56%) (BIP -4.77%).
Enormous growth ahead
Kinder Morgan operates the largest natural gas pipeline network in North America. Most of its assets are in Louisiana and Texas, where LNG is fueling enormous growth in natural gas demand. The company's co-founder Richard Kinder had this to say about LNG on its recent quarterly conference call:
The demand for natural gas in those states (Texas and Louisiana) is projected to grow enormously over the rest of this decade. That growth is driven by a number of end users but let me just focus on LNG export facilities. Year-to-date, in 2022, LNG is consuming over 11 Bcf a day...According to the S&P Global LNG forecast, that number is predicted to grow to 22 Bcf a day by 2027 as new facilities come online. That's virtually doubling the current demand, which has already grown by 400% in the last five years. We project that after '27, LNG demand will continue to grow and expected to be 28 Bcf a day by 2030. Given the situation in Europe today, which will result in more long-term contracts and the continuing usage in Asia, this hyper-growth scenario actually seems pretty reasonable to me.
Kinder Morgan currently moves about half the gas exported through LNG facilities in the country. It expects to maintain or expand its market share in the future. Richard Kinder sees "an enormous opportunity to grow our system in a capital-efficient manner, which in turn will grow the value of our company." It's already pursuing several high-return projects and evaluating many others. Those expansion projects could give the company the cash flow to grow its 6%-plus-yielding dividend for years to come.
A clear vision for the future
Cheniere Energy is a leading producer and exporter of LNG. It operates two LNG facilities, Corpus Christi and Sabine Pass, the latter of which it owns through its investment in Cheniere Energy Partners (CQP). These facilities currently have the capacity to produce 45 million tons of LNG per year, the bulk of which it sells under long-term contracts.
Cheniere's LNG contracts generate lots of steady cash flow. The company recently unveiled its long-term capital allocation plan -- dubbed its 20/20 vision -- to return more cash to shareholders while expanding its LNG platform. Cheniere boosted its dividend by 20% and plans to grow it by about 10% per year. It also increased its share repurchase authorization, plans to repay more debt, and approved its Corpus Christi Stage 3 project that will grow its capacity by another 10 million tons per year.
This strategy should generate $20 billion of available cash through 2026 while growing its distributable cash flow run rate to over $20 per share in the future. Meanwhile, it's evaluating plans for additional expansions at Corpus Christi and Sabine Pass as it works to capitalize on growing LNG demand, which could ultimately double its capacity. Cheniere's combined cash return and investment strategy could significantly increase shareholder value in the future.
Positioned to capitalize on LNG
Leading global infrastructure operator Brookfield Infrastructure has made several investments in recent years to capitalize on growing LNG demand. It's a partner with Kinder Morgan in the Natural Gas Pipeline Company of America, which is evaluating a third-phase expansion of its Gulf Coast operations. It also owns an interest in Cheniere Energy Partners, giving it upside potential if Cheniere expands Sabine Pass. Brookfield also operates a natural gas gathering and processing business in Western Canada, positioning it to benefit from growing gas deliveries to West Coast LNG export projects currently under construction.
Meanwhile, Brookfield has a strong financial profile and an active capital recycling program. That gives it the flexibility to potentially pursue additional opportunities to capitalize on growing LNG demand. For example, Brookfield could become an equity investor in another LNG export facility to help support its development or expansion. The company could also acquire additional pipeline infrastructure to support LNG demand. It could also invest in LNG import and regasification facilities in Europe or Asia.
The company's natural gas infrastructure investments will supply it with steadily growing cash flow in the coming years. That will help support Brookfield's plan to increase its 3.6%-yielding dividend at a 5% to 9% annual rate.
Great ways to play the LNG boom
Growing demand for LNG will drive the need for additional pipeline and export infrastructure. That should enable Kinder Morgan, Cheniere Energy, and Brookfield Infrastructure to continue expanding in the coming years. Those investments will likely grow their cash flows, giving them more money to invest and return cash to shareholders. That makes them great energy stocks to play the LNG boom.