The Future Of Natural Gas And MLPs

by: Michael Ambrozewicz

There is indeed a huge role that natural gas has in defining what the American character is in terms of nation building. The political landscape is changing quicker and quietly and with the Obama administration approving a ten billion dollar facility in Texas enabling them to export natural gas to Japan and other nations, it ushered a belief that even though natural gas is abundant it should not be cheap. However, there is a sensibility that natural gas should only be hoarded by American consumption and exporting natural gas may cause domestic prices to rise and hurts consumers and the American economy as a whole.

U.S. exports of refined products, notably diesel and natural gas liquids such as propane and butane has soared in recent years. It built Markwest Energy Partners, L.P. MWE from a one billion market cap to ten billion in a few years. The U.S. energy renaissance and its dramatic growth of crude oil and natural gas has expedited Markwest Energy, Enterprise Products Partners L.P. EPD, Kinder Morgan Energy Partners L.P. KMP, and other MLPs to expand on their horizon internationally. The U.S. has entered an era of energy abundance forcing MLPs to build facilities that meet domestic and emerging markets. The natural gas producers require higher natural gas prices in order for them to grow and produce to accommodate emerging markets, making MLPs a strong buy.

What hurts MLPs is a long standing political debate of whether natural gas should be exported to other countries that do not have free trade agreements with the U.S. It is an issue that natural gas producers are unable to come to terms with. The stakes are too high not only for the future of natural gas, but also with the growth of the American economy as a whole. Are the natural gas producers justified on their conventional wisdom that natural gas prices should be increased? The answer is yes. Unlike GM, Chrysler, and banking institutions, they have never received any subsidies from the U.S. government, they have never had anything to lean on and rely on their own growth to sustain themselves. Natural gas producers never got the support from the American people and policymakers when it hit $2. The producers became more disciplined to reduce natural gas rigs in order to increase prices and demand. The widening gap between the Henry Hub prices and natural gas prices on the international market has opened the floodgates of applications for permits to export LNG as suppliers look to take advantage of price differential. Even though the U.S. Energy Information Administration reported that U.S. natural gas prices could jump 54 percent if export plans currently on the table go through, it is nothing that Americans should fear.

On October 13, 2009, Qatar Airways made history by operating the world's first commercial flight using fuel made from natural gas, creating a potential new resource of aircraft fuel for the future. Aviat Aircraft was the first to introduce an airplane to run on both standard aviation fuel and compressed natural gas. Indian Railway is currently developing a prototype locomotive which would run on liquefied natural gas. The railway intends to build another 20 LNG-based locomotives. At an energy summit in Washington, Dan Akerson, the CEO of General Motors stated that the 2015 Chevrolet Impala will be the GM's first car powered by natural gas. A few months later, Warren Buffett took the claim that BNSF Railway Company, one of the biggest U.S. consumers of diesel, plans to test using natural gas to power its locomotives this year.

The use of natural gas in transport has the potential to change the role of energy infrastructure, politics, and investing. However, it needs the right mix of government policies to export consumption power to emerging markets. The natural gas industry sees the coming boom in exports to Asia as a windfall that will shore up U.S. trade deficits. As the cleanest burning hydrocarbon and lower greenhouse gas emitter, natural gas is our best bet as a highly efficient alternative to coal-fired plants.

On the domestic front, Markwest Energy Partners , Enterprise Products Partners L.P., Linn Energy, LLC (LINE), and Kinder Morgan Energy Partners, L.P. have formed an industry that perfectly complements each other rather than competes with each other. They have a built of sense of equilibrium that is unflappable even in the face of remarkable challenges such as building pipelines. Building pipelines takes a huge range of skill which could only be perfected through experience in the field. MLPs have developed a collective bargain chip that requires a collaborative approach so that teams of various companies could build from each other. Long-term contracts provide them with fees for transporting natural gas. In the future, producers of natural gas will force midstream companies to build pipelines for exporting markets.

EPD recently announced the expansion of its liquefied petroleum gas export terminal on the Houston Ship Channel. As a result of this expansion, Enterprise Products Partners would be able to load up to 16 million barrels monthly of propane and/or butane. Michael Creel recently stated, "The location of the expanded terminal at Oiltanking enables us to increase maximum loading capacity to approximately 27,000 barrels per hour, the highest in the industry." In addition, on January 2, 2014, EPD announced that transportation services for shippers who executed long-term agreements supporting the partnership's Mid-America Pipeline Rocky Mountain expansion project had officially begun. This project would support NGL and natural gas productions from major basins in Utah, Colorado and Wyoming. These opportunities provide great potential for the energy industry in the U.S.

Management at Kinder Morgan Energy Partners announced that expected earnings distribution is anticipated to increase by 5%, while the core-operating earnings expects an increase of 13%. The reason for these increases would be the entry into the $30 billion market of the Jones Act and joint ventures with other companies to construct NGLs to provide services for producers in the Utica and Marcellus shale. The entry into the Jones Act gives KMP new opportunities in regards to acquisition driven growth and allows control of U.S. vessels that move items between U.S. ports. It recently acquired two oil tankers paving the way for capacity improvement. The increased shale activity increases product demand for waterborne transportation to move these products making KMP a key player in the business.

There are few choices that Americans have; one is to fear that natural gas prices will rise and that fear will limit the growth of their national character. It will limit future investments, but most of all it blinds Americans in finding the true answer of what their country is made of and if I can reiterate Pericles, an Athenian politician from the golden ages of Athens, "We make friends by doing good to others, not by receiving good from them, our friends become more reliable when we keep alive the gratitude of those who are in our debt."

Disclosure: I am long MWE, KMP, . I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.