The Best Way To Play Natural Gas Today

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October 10, 2013 12:16pm NYSE:AMJ NYSE:UNG

natural gasGarrett Baldwin: There’s a new global capital shift that’s affecting how to invest in natural gas (NYSEARCA:UNG) today for maximum profit.


You see, there was a time when U.S. manufacturing companies invested heavily in the Middle East because of the region’s low-cost energy sources.

Today, that money is coming back home.

International companies have noticed that the United States is a cheap source of natural gas. That’s because the rise of hydraulic fracturing triggered a boom in U.S. natural gas production.

Now global companies will look to the United States for a steady supply of inexpensive energy to power manufacturing across a wide number of verticals. International manufacturers are expected to invest up to $50 billion through the end of the decade on new capital projects in the United States, according to Boston Consulting Group.

This presents incredible opportunities for investors looking for how to invest in this second wave of the natural gas boom.

And there’s one state you should look at to start profiting today…

The Biggest Winner in Natural Gas Growth

The State of Louisiana has been one of our favorites when hunting for profits from the U.S. natural gas revolution.

One of the best investments in natural gas it has given us is Cheniere Energy (NYSE:LNG) and its Sabine Pass Liquefaction Project, which sits along the border of Louisiana and Texas. The stock has soared from a low of $4.00 on Oct. 3, 2011, to $35.88 on Oct. 8, 2013. The exporting of liquefied natural gas, set for 2014, will continue to offer profits for this stock and new entrants to the practice.

Now Louisiana is going to be a huge player in the second wave of natural gas profits.

In Louisiana alone, projects ranging from $850 million to $21 billion will boost domestic and imported investment in cheap U.S. natural gas.

That’s big news for the state – and for anyone wondering how to invest in natural gas today.

These investments involve the following companies:

  • South African-based Sasol Ltd. (NYSE:SSL) has planned a $21 billion investment in a natural gas processing plant. This is the largest investment by a foreign-based company in American history.
  • Royal Dutch Shell plc (NYSE:RDS.A) announced recently that it will likely build a $12.5 billion gas-to-liquids plant in the state.
  • Incitec Pivot Ltd. (OTCMKTS:ICPVY), an Australian fertilizer and explosives company, will build an $850 million ammonia plant.
  • Australian Magnolia LNG has planned a $2.2 billion gas liquefaction production and export facility.
  • CF Industries Holdings Inc. (NYSE:CF) is spending $2.1 billion to expand its Louisiana Nitrogen Complex in Donaldsonville.

As new projects come online, the demand for domestic natural gas will only continue to swell. And if you want to capture the profits, you’ll need to know exactly where to look.

Here’s how to invest now…

It’s All About the Midstream

If you want to make money in the energy sector, there’s only one place that you need to park your money.

It’s an area known as the midstream. Our Global Energy Specialist Dr. Kent Moors talks about it all the time. And it’s the perfect place to profit as international investment ramps up.

Midstream companies connect the “upstream” exploration and production companies to the “downstream” retail, refining, and marketing channels and provide vital services in transportation, storage, and processing. They provide the pipelines and the storage and get the fuels where they need to go.

Midstream master limited partnership (MLP) operations are successful because they typically generate fee-based revenues on fuel volumes going through the pipeline, so these companies enjoy less exposure to price volatility – a very welcome sign to the risk-adverse investor. But with natural gas prices expected to increase over time, MLPs will likely see even stronger revenues.

And it’s these partnerships that typically pay higher yields in the form of distributions to shareholders and offer the ever-tantalizing share appreciation opportunities.

To capture the growth of Louisiana’s access to cheap, affordable energy, look to companies with extensive operations in the state. These include Gulf Coast focus companies like Genesis Energy LP (NYSE: GEL), Energy Transfer Equity LP (NYSE:ETE), and Regency Energy Partners LP (NYSE:RGP).

All three provide yields above 4%, with RGP sitting at a nice 6.63%.

Or you can capture the growth of the MLP sector by investing in a fund that tracks the performance of the sector as a whole.

The JPMorgan Alerian MLP Index ETN (NYSEARCA:AMJ) tracks the performance of the booming energy MLP sector. Created in 2009, the market cap-weighted index currently pays an attractive yield of 4.85%, while the underlying share price has more than doubled since its inception.

The index offers many of the same benefits of investing in a traditional MLP. The two biggest benefits are those opportunities to acquire a strong yield and to reinvest those dividends into appreciating shares.

The midstream offers some of the best bang for your buck. But next week, we’ll start to discuss how this trend is impacting other states, including Texas and Montana, and how to invest in the best natural gas opportunities there.

Money MorningWritten By Garrett Baldwin From Money Morning

We’re in the midst of the greatest investing boom in almost 60 years. And rest assured – this boom is not about to end anytime soon. You see, the flattening of the world continues to spawn new markets worth trillions of dollars; new customers that measure in the billions; an insatiable global demand for basic resources that’s growing exponentially; and a technological revolution even in the most distant markets on the planet.And Money Morning is here to help investors profit handsomely on this seismic shift in the global economy. In fact, we believe this is where the only real fortunes will be made in the months and years to come.


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