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Still Flowing

Jun. 04, 2020 9:53 AM ETUNG, UGAZF, DGAZ, BOIL, KOLD, UNL, GAZ, KMI, WMB, AGX, NFE, GTLS, EME4 Comments
Todd Sullivan profile picture
Todd Sullivan


  • Nat gas is quickly becoming the globe's primary energy source.
  • The global response to COVID-19 has reduced demand temporarily but is not likely to have a long-term impact.
  • LNG exports are likely to continue to dominate going forward.

This is a significant reason I love Kinder Morgan (KMI) and Williams Companies (WMB). Nat gas is quickly becoming the globe's primary energy source, and it has to get to the US coast to exported. If you own KMI and WMB, you touch ~70% of the nat gas being transported in the US. Results at both are demand-driven, not commodity price-driven, and demand for nat gas is continually rising, and along with it the need for the infrastructure these two provide.

With both paying over 7% dividends currently (both are C-corps, not MLPs), grabbing these and tucking them away is something I like.

LNG has grown to ~50% of natural gas exports. LNG pricing has risen ~45%, from $3.6 to $5.2/MMcf since Jan. 2016 and, despite falling pipeline pricing, has continued to rise, reflecting global demand. LNG monthly exports in Feb. 2020 of $1,137bil/mo dwarfs exports for pipeline gas at $0.437bil/mo. The demand trend for LNG has been 70% annual growth as opposed to pipeline demand at 7%.

The global response to COVID-19 has reduced demand temporarily but is not likely to have a long-term impact. Note that demand peaks with the northern climate demand for heating every winter, seasonal demand may begin to smooth out as multiple LNG power projects in countries with more equatorial climates come online. By building higher summer demand for power, which is likely to follow lower costs of LNG vs. other fuels for air conditioning.

LNG is proving itself globally as low-cost to produce, low-cost to export, and a lower-cost fuel for electric power vs. alternatives. LNG once transported, on gasification, is a much safer, less polluting fuel with lower transport costs, especially if delivered via residential distribution systems. LNG exports are likely to continue to dominate going forward. Suggested companies for portfolios include Argan (

This article was written by

Todd Sullivan profile picture
Todd Sullivan is a Massachusetts-based value investor and Co-Founder and General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer supports his original thesis. His blog features his various ideas and general commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain's NY and others. He has also appeared on Fox Business News and is a RealMoney.com contributor. He has twice presented at Bill Ackman's Harbor investment Conference and is a regular presenter at the Manual of Ideas "Best Ideas" conferences. Visit his sites: ValuePlays (http://valueplays.net/) , Rand Strategic Partners (http://randstrategicpartners.com)

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Comments (4)

papaone profile picture
I owned them both in 2019 and sold in 2/2020 and repurchased them both in late March at fantastic prices. They are the only purchased I made at that time. Waiting to be sure the virus issue is not going to relapse. Election 2020 ugh.
Smiling Dog profile picture
I also really like the nat gas pipelines - Curious if you have any thoughts on TCP (I also own WMB)? TCP seems to have more upside left in it. WMB is trading at 9.7x 2021 EV/EBITDA (vs. 10x pre-COVID), while TCP is trading at only 9x 2021 (vs. 11x pre-COVID) - I think TCP should continue to trade a premium given its regulated/locked-in cash flows. Both seem to have solid growth opportunities. Thanks for the article.
Flowering? KMI? Great article title......got me to look.
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