While the price of oil is stealing headlines, there is a quiet shift taking place in the energy landscape.
American natural gas is quickly becoming the sweetheart of energy and chemical producers. The abundant supply and cheap price is helping to attract foreign buyers.
America and China are leading the world in switching to natural gas for electricity generation. The energy-dense fuel burns cleaner than coal and pairs well with renewable energy.
However, there is another use for natural gas that is even less known by mainstream investors.
Ethane, a chemical that’s extracted from natural gas, goes into making a host of everyday items, such as plastics, PVC piping and even antifreeze.
A few years ago, most American producers didn’t bother removing ethane from natural gas. Today, the U.S. is shipping ethane abroad by the boatload.
The U.S. Energy Information Administration estimates that the use of ethane will increase 30% to 1.6 million barrels per day in 2019.
The change is occurring because of two ethane processing plants completed in 2016. Previously, America lacked the ability to process ethane en masse.
Take a look at the chart below showing the spike in production of ethane.
The success of these plants is spurring the development of several new ones. Operations will start coming online this year.
The timing couldn’t be better. The ramp up in shale oil and gas production is seeing an increase in ethane. The new plants will make good use of the extra gas.
Investors looking to capture the trends in natural gas and ethane should consider the First Trust North American Energy Infrastructure ETF (NYSE: EMLP).
This exchange-traded fund holds a basket of midstream energy providers with exposure to natural gas transportation and processing. EMLP yields a 4% dividend at current prices, and has gained nearly 9% in the past three months.
And if you want to buy the best natural gas stocks, check out the recommendations in Matt Badiali’s Real Wealth Strategist service.
Good investing,
Anthony Planas
Internal Analyst, Banyan Hill Publishing