West Texas has a natural gas problem. But it might not be the kind you’re thinking…
The region is facing an excess in supply. There’s so much natural gas that energy companies are paying to have it taken away.
At the Waha gas hub in the Permian Basin, natural gas prices have been in negative territory since mid-March.
Last week, they went as low as negative $3 per MBtu (a measurement of energy output) when a fire shut down a pipeline bringing gas out of the region. One MBtu is enough energy to heat a swimming pool full of water by 10 degrees.
But that hasn’t stopped energy companies from continuing to pump out the fuel…
So why are they now desperate to get rid of their product?
Today, I’ll tell you what’s going on that’s causing this glut… why these companies are paying to have their natural gas taken away… And show you one way to profit from natural gas while collecting a reliable high yield.
Natural Gas Has Nowhere to Go
Natural gas prices are low across the country. A combination of high production and a mild winter – which meant people used less gas for heating – have dragged prices to levels not seen in nearly 30 years.
At the Henry Hub in Louisiana, natural gas prices have been hovering between $1.50 to $2 per Mbtu since February.
But at least the price there is still positive.
What’s going on at Waha? Why are producers willing to take a loss on natural gas?
The answer, strangely enough, is because oil prices are still high. Thanks to tensions in the Middle East, oil is still trading over $80 per barrel.
Oil produced in the Permian Basin, located primarily in northwestern Texas, breaks even at around $60 to $65 per barrel. So energy companies are happy to keep drilling new wells.
Those wells don’t just produce oil. They also produce a lot of natural gas. So the supply of gas keeps increasing, too.
But the Permian Basin is hundreds of miles away from refineries on the Gulf Coast and from major cities where natural gas would be used.
The only way to transport natural gas out of the Permian is through pipelines. And all the pipelines in the region are already sold out.
In the past, oil companies would have gotten rid of the extra natural gas by “flaring” it, or burning it off. But the methane in natural gas, as well as the carbon dioxide created when it burns, are both strong greenhouse gases. And regulators have been cracking down on the practice.
So their only option now is to pay anyone with spare pipeline or storage capacity to take natural gas off their hands… which isn’t a reliable long-term solution.
A Solution on the Horizon
Relief is on the way, though. More pipelines are being built and will open for service later this year.
Plus, an increase in liquefied natural gas (LNG) exports is expected to create more demand for natural gas.
When natural gas is cooled to -260° F, it turns into a liquid. And in the process, its volume shrinks by about 600 times. That makes it easy to load it onto a ship and transport it to other countries.
In Europe, natural gas costs about $9 per Mbtu, nearly 5x higher than prices here in America.
That’s why companies have spent years getting government approvals and billions of dollars to build the infrastructure needed to make LNG possible.
Despite the government putting a “pause” on approving new LNG permits earlier this year, it can’t take back the approvals it has already given out.
There are five LNG terminals under construction that will nearly double the amount of LNG that can be exported over the next three to four years.
That extra demand could send natural gas soaring higher. Energy traders are already betting that natural gas prices will more than double to over $4 per Mbtu by 2026.
Here at Intelligent Income Daily, we’re focused on finding the safest income investments on the market. Natural gas is one of the most widely used fuels in the world. But the price of the fuel can swing wildly from negative to positive depending on how much supply and demand there is.
So how can you lock in reliable profits on something so volatile?
Well… remember those pipelines that are completely sold out?
The pipeline companies that transport natural gas act like tollbooths and get a reliable profit, no matter what the price of natural gas is. As long as gas need to be moved from one place to another, they’ll collect a fee. That means they have reliable earnings that grow as demand for gas increases.
And those reliable profits mean reliable dividends for shareholders.
One quick way to add pipeline companies to your portfolio is through the Global X MLP & Energy Infrastructure ETF (MLPX). This exchange-traded fund owns a collection of the top pipeline companies.
MLPX yields 4.9% and has produced 78% returns over the past three years. That’s nearly 3 times better than the S&P 500.
With an investment in pipelines, you can still profit even when natural gas prices are negative.
Happy SWAN (sleep well at night) investing,
Brad Thomas
Editor, Intelligent Income Daily
A new, secretive move being carried out by the Fed that has nothing to do with lowering or raising interest rates... could soon have an enormous impact on your wealth. According to Dan Ferris, the banking expert who once predicted the collapse of Lehman Brothers, "Millions are about to be blindsided." More here.
Source: Wide Moat Research
