by Bryan Perry
May 3, 2022
With bond yields rising and the major stock averages testing and, in some respects, violating the March lows, income investors need to look no further for incredible inflation-sensitive and tax-efficient comfort zones than the Master Limited Partnerships (MLP) space. As a sub-sector of the broader energy sector, these operators of pipelines that transfer, store, and gather oil and natural gas are enjoying the best of all bull market conditions at a time when so much uncertainty is weighing down investor sentiment.
European sanctions against Russian oil and natural gas have become a massive catalyst for U.S. natural gas exploration, production, and infrastructure to get oil and gas to end markets that are in serious need of filling their Russian void. Springtime is considered the “shoulder season,” or the time just before and after summer: March through April and September through October. Temperatures are usually more moderate in the late spring and early fall months, when fewer people rely on natural gas to heat or cool their homes.
This year, the natural gas market is not cooperating with that scenario due to the Russia/Ukrainian war and sanctions. In fact, natural gas is trading above $7.00/MMBtu as traders bid up futures in anticipation of increased exports and building inventory for domestic consumption after a period of lower production.
If summer in the U.S. sees above average temperatures, there is a higher probability for natural gas prices to push higher as power plants increase electrical output to cool our homes and buildings.
Rapid conversion from coal-fired to gas-fired plants has been underway for many years, to the point where natural gas now accounts for 38.3% of total output. For all its popularity and huge private/public investment, renewables account for only 20% of total output, barely overtaking nuclear power generation.
Thankfully, the U.S. has abundant proven gas reserves. Now that the economy is reaccelerating, demand for gas both here and abroad is on the rise, and in some places, rising sharply.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
And then there is the issue with Europe moving off of the Russian gas that accounts for about 30% to 40% of all imported gas, with Germany being the #1 customer. On March 17, the Biden administration authorized an increase in Liquified Natural Gas (LNG) exports to Europe, but President Biden and his energy people apparently didn’t get the memo that there is no more capacity at LNG terminals in the U.S.
Our seven active U.S. LNG terminals are operating at 100% capacity, with 24% of all 2021 exports going to Europe. More LNG terminals are under construction, but only two are slated to be activated this year.
What is already underway is an environment of sustained strong demand and pricing for natural gas for both domestic and international markets; so the more LNG plants that come online in the next couple of years, the more we can export to markets thirsty for an abundant energy source that can replace dirty coal.
Under this assumption, these perfect storm conditions are in my opinion, a collective catalyst to the oil and gas pipeline infrastructure stocks.
Below is a group of MLP ETFs that pay yields without the misery of generating K-1 reports.
- Global X MLP ETF (MLPA)
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
- Alerian MLP ETF (AMLP)
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
- Kayne Anderson Energy Infrastructure Fund (KYN)
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
- InfraCap MLP ETF (AMZA)
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Granted, there is a lot of overlapping stock ownership in these four ETFs, so their bullish charts can look similar, but what is clear about these income securities is that they generate 1099s instead of K-1s.
All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Why Negative First-Quarter Growth Will Likely Be Revised Upward
Income Mail by Bryan Perry
Geopolitical Storm Conditions Are a Boon to Energy Income
Growth Mail by Gary Alexander
What’s Happening with Growth?
Global Mail by Ivan Martchev
Oil is in a Volatility Squeeze
Sector Spotlight by Jason Bodner
What’s the Best Value Now
View Full Archive
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Bryan Perry
SENIOR DIRECTOR
Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.
Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry
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