The development and rapid deployment of fracking technologies created the shale revolution — and calling it a “revolution” isn’t hyperbole. The United States has tapped into previously inaccessible reserves of crude oil and natural gas to become the world’s top energy producer virtually overnight.
It will continue to climb the global rankings of energy exporters, too. In fact, within a few short years, the U.S. is on pace to completely erase a trade deficit in energy products that peaked at $321 billion in 2011.
The new normal in American energy creates significant long-term opportunities for investors. Cheniere Energy (NYSEMKT:LNG), the country’s top exporter of liquefied natural gas (LNG), and Enterprise Products Partners (NYSE:EPD), a $64-billion oil and gas midstream giant, are two stocks you can buy and hold to cash in on the trend for the next decade or more.
The king of LNG
A few short years ago, Cheniere Energy became the first company to begin exporting bulk cargoes of LNG from American shores. The company’s Sabine Pass export facility could be what is the largest LNG export terminal ever built in the United States. And thanks to long-term offtake agreements extending 20 years or longer, there’s a predictable path ahead for the business and investors.
In the first half of 2018, the business delivered $3.78 billion in revenue, $1.08 billion in operating income, and $982 million in operating cash flow. That steady flow of dollars will help Cheniere Energy clean up its balance sheet (LNG export facilities are incredibly expensive to build) and simplify its operating structure (there are numerous subsidiaries today), especially considering it’s not close to operating at full tilt yet.
The timing surrounding its newfound financial strength couldn’t be better, as the LNG pioneer is preparing to bring its second export terminal on line in Corpus Christi, Texas. The first production units will start up in 2019, although bringing all approved production capacity into service will take several years. Eventually, Cheniere Energy will boast an export capacity of 4.2 billion cubic feet per day (Bcf/d) at Sabine Pass and another 2.14 Bcf/d at Corpus Christi. That will result in the company owning at least half the nation’s total export capacity for most of the next decade or longer.
Simply put, the importance of LNG exports to American energy dominance and global trade flows makes Cheniere Energy a top energy stock to buy for the long haul.
The “other” opportunity in American energy
Producers of crude oil and natural gas seem to get all the attention in discussions of the industry, but there are other lucrative opportunities to explore. For instance, there are absolutely massive markets for petroleum products known as natural gas liquids (NGLs), such as ethane and propane. Overlooking this area could prove regrettable for investors.
Global petrochemical producers have committed over $200 billion in capital investments to build new, world-class chemical plants in the United States to gain access to one the world’s cheapest sources of ethane and propane, both of which can serve as a low-cost feedstock for chemical production.
Enterprise Products Partners is all over the opportunity. Already a leader in midstream infrastructure — pipelines, storage facilities, and processing plants — for moving products from field to refinery, the $64 billion company has invested heavily in the emerging opportunity in American chemical production.
Enterprise Products Partners has recently allocated 53% of planned capital investments for NGL projects, including processing facilities, over 1 million barrels per day of dedicated pipelines, storage tanks, and even an export terminal. And the company plans to go a step further. In addition to delivering NGLs to chemical plants now being built, the business will take finished chemicals (namely ethylene) and transport them to its fledgling chemical logistics network. In the next few years, Enterprise Products Partners will be able to export 2.2 billion pounds of ethylene per year while monetizing most parts of the supply chain involved.
Most important, the business is built on a solid foundation that leans on fixed-fee contracts for 80% of gross profit. That allows Enterprise Products Partners to make significant, forward-thinking investments all while paying a healthy 5.9% dividend yield. It’s a solid, long-term energy stock to buy and hold for the next decade or longer.
America’s energy revolution runs through these two stocks
Cheniere Energy and Enterprise Products Partners are well positioned to capitalize on the trends unfolding in American energy. While there will be more LNG export terminals approved and built in the next decade, the pioneering company should remain a leader in the industry for decades to come. Meanwhile, the midstream giant has eyed an under-the-radar opportunity in new chemical production and has invested accordingly. At the very least, both energy stocks should be on the radar of long-term investors.