Anthony Speciale Stock Market Analyst

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This MLP Could Rise 50% as Natural Gas Prices Surge

The United States should be absolutely awash in natural gas. We should be able to do whatever we need to do on the energy front and have a whole bunch left over.

We should be in a position to bail Europe out of its increasingly desperate natural gas shortage. Instead, they are having to turn their eyes to Russia as a source of additional natural gas.

That is a political and economic disaster in the making, as Russia has held Europe hostage before over natural gas.

Instead, the U.S. should be shipping a ton of liquefied natural gas to Europe, but we’re not. And we don’t even have enough to meet the demand here at home.

But the reality is that we’re not producing as much natural gas as we were a few years ago.

Why Prices Are Skyrocketing

For political reasons, we have decided to discourage additional exploration and production of natural gas, particularly in the fracking shale fields that made us, at least temporarily, energy independent.

This is resulting in very high natural gas prices, and natural gas stocks have also exploded in value all over the world as prices have moved up.

After all, shortages of supply and increased demand mean higher prices, and higher prices mean that if it’s cold in the northern part of the country this year, people are going to get hit with massive heating bills.
That could have a negative impact on consumer spending and the economy.

Higher natural gas prices also mean higher chemical prices, which could result in higher prices for just about everything that we touch and use. All of this is inflationary, and it likely won’t be transitory.

Even if the entire industry started drilling like crazy right now, it would take months to get any additional supply to market. This is a big problem for the economy in the making.

So, what can we do about it?

The Leader in Natural Gas

Well, we’re in a position where we can get paid very well thanks to the natural gas shortage. What we want to do is look to the master limited partnership (MLP) mid-stream natural gas companies.

These are the companies with the pipelines that gather, store and transport natural gas so that it can be used by the end customer.

But the granddaddy of them all is Enterprise Products Partners L.P. (EPD). It’s one of the largest MLP companies out there, with 50,000 miles of pipelines as well as terminal facilities.

EPD has storage capacity of 260 million barrels of oil and natural gas liquids and 14 billion cubic feet of natural gas, so they really are a huge player in this market. Their pipelines are going to be really busy moving gas all over the country, especially if we have a cold winter.

They also have terminal facilities in most of the major ports for large tankers down in the Gulf of Mexico region, so they’re also involved in the international export markets.

EPD is also one of the very few MLPs that has an investment-grade credit rating, as their balance sheet is just in fantastic shape.

The company pays a dividend of over 8%, so we’re going to get paid to own the stock in a very low-interest-rate world. But when we add up the company’s assets, which are likely to continue to rise in value, the stock is trading at a substantial discount to that value.

So, natural gas prices are higher and will probably go a lot higher. The pipelines are going to be very busy. And we can collect that 8% dividend and expect a 50% rise in the stock price over the next year or so as well.