4 Firms Set to Benefit From Higher Natural Gas Volumes

Stephen Ellis: We recently published an NGL forecast, the natural gas liquid forecast, for our coverage universe. We are essentially forecasting 6.7 million barrels per day of NGL production, U.S. NGL production, by 2022. In contrast, consensus estimates are as low as 4.5 million barrels per day. This essentially implies that exports will either decline from current levels or that NGL production will not be able to meet the need for demand from U.S. steam crackers starting up over the next few years from the U.S. Gulf Coast.

The main drivers for our forecast are China and India. China has significant demand for cleaner burning, more environmentally-centric feedstock, whereas India is also looking for similar attributes. Therefore, we expect those to be the key incremental drivers for demand, particularly NGL exports. This is mainly propane and ethane. In contrast, we do expect NGL pricing to decline approximately 20%. This is due to our Brent forecast. NGL prices have proven to be very highly correlated with Brent over time.

Our top picks going forward can take advantage of this significant trend. Wide-moat Enterprise Product Partners, Energy Transfer Partners, Targa Resources as well as Phillips 66 Partners, all of these firms have very substantial exposure to NGL exports and high-quality assets that are well-positioned to benefit from this trend.