Growing demand for natural gas in the U.S. has led to that commodity being a key growth opportunity for midstream players.
Williams (WMB) reaffirmed its strategy around natural gas during its analyst day last week. Strong demand and anticipated growth projects coming into service leads to a constructive long-term outlook for natural gas.
Several factors support growing natural gas demand. Natural gas is a critical fuel used globally as it’s an immediate and scalable solution that provides affordable and reliable energy while reducing emissions compared to other fossil fuel energy sources.
Natural Gas: Affordable and Reliable
Natural gas is inexpensive relative to the other fuels and the alternatives that people use around the world. The affordability of natural gas is driving opportunity for midstream companies in the U.S., said Alan Armstrong, WMB’s president and CEO, during the company’s analyst day.
Coal-to-gas switching for power generation has accounted for more than half of U.S. emission reductions since 2005. However, more progress can be made, as there are still 217 operating coal-fired power plants in the U.S. Abundant natural gas resources in the U.S. can support coal-to-gas switching domestically.
Power generation from coal is expected to decline in 2024, whereas generation from natural gas is expected to hold steady. Power generation from natural gas produces nearly twice as much electricity as wind, solar, and hydropower combined, according to the U.S. Energy Information Administration.
Therefore, even as the world continues to embark on an energy transition, natural gas will continue to serve as a complementary energy source.
Renewables are successful in reducing fuel consumption. However, they do not replace the need for having a backup power source, Armstrong said. As renewables are advanced and built out, natural gas is becoming the alternative source of energy.
“Whether people want to accept that or not, it really is becoming the fuel of choice for the utilities,” Armstrong explained. “Nuclear is just too far out, given the strong surge in growth that’s going on right now.”
Getting Exposure to WMB and Growing Opportunity in Natural Gas
WMB is a top 10 holding in the Alerian Energy Infrastructure ETF (ENFR ). The ETF provides exposure to the Alerian Midstream Energy Select Index (AMEI).
ENFR’s underlying index is a composite of North American midstream energy infrastructure companies. It includes corporations and MLPs that are engaged in the pipeline transportation, storage, as well as processing of energy commodities. The index is yielding 6.23% as of February 22.
For more news, information, and analysis, visit the Energy Infrastructure Channel.
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