After this past week of heat – wave oppression, it might come as a shock to most to find out that the US is still sitting on too much natural gas. But that’s not necessarily a bad thing for investors.
Although nat gas is produced at the same pace year round, the demand fluctuates seasonally. And the extra that isn’t used during the off seasons needs a place to be stored. Currently there is 4.5 trillion cubic feet of storage capacity in North America, but as we move toward a natural-gas future – something Cramer thinks is very likely – even more storage space will be needed.
So how do you capitalize on the trend? Only two companies publicly trade natural gas storage stocks, PAA Natural Gas Storage and Niska Gas Storage Partners . Both companies went public within just weeks of each other (April 29 and May 11, respectively). However, PNG is up 12.7% since going public, while NKA is down 8.2%. This may be due to PNG’s two natural gas storage facilities, one smartly located at the intersection of eight high-capacity gas pipelines in Louisiana that can take natural gas to the Northeast, Midwest and Southeast, known as Pine Prairie, and the other in Michigan, known as Bluewater. Pine Prairie holds 24 billion cubic feet of capacity, while Bluewater holds 26 billion cubic feet.
PNG is a master limited partnership, meaning it returns the bulk of its profits to shareholders in the form of a dividend, and right now that dividend yields an attractive 6%. But there’s growth here, too. The company plans to increase capacity by 36% by the middle of 2012 – including nearly doubling the size of Pine Prairie to 42 billion cubic feet. That brings the dividend part of this investment full circle, because the increased business should result in a payout boost. As Cramer always says, the best way to protect yourself in a volatile market is with a big dividend like this one. And reinvesting PNG’s dividends will allow you to double your money in just 12 years, even if the share price goes nowhere.
PNG has one more thing to boast that NKA does not: PNG gets 100% of its income from fees, meaning that it is not susceptible to changes in nat-gas prices. This is in contrast to that of NKA, whose fees account for just only 67% of income.
So Cramer’s recommendation is this: “Open season” for the Pine Prairie facility, meaning that the company is taking non-binding bids for contracts for 2 billion cubic feet of storage starting in the second quarter of 2011 to measure demand for further expansion there, ends ends on Thursday. He thinks it could be a big catalyst, therefore investors should wait to see how it goes, then buy some ahead of the earnings report on Aug. 4.
“I bet that quarter will be an harbinger for the future,” Cramer said. “Because if natural gas didn't burn off its excess and spike in price off supply shortages in the last few weeks of heat, I don't know if it ever will again.”
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