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Legacy: How to Play LNG
07/03/2014 8:00 am EST
Natural gas is cleaner and cheaper than most energy alternatives; it releases only about half as much carbon dioxide as coal when used to generate the same amount of electricity, suggests Mark Skousen, editor of High Income Alert.
And when you factor in transportation costs, there is also a huge logistical advantage for North American manufacturers. Cheap and plentiful natural gas is igniting a US manufacturing renaissance.
Utilities and trucking companies are also busy switching from coal or diesel to natural gas. (Exxon predicts that natural gas will overtake coal as a global energy source within five years.)
Natural-gas vehicles make up less than 0.1% of the US fleet, but this will soon change. Trains are other good candidates for gas conversion.
Based in Midland, Texas, Legacy Reserves (LGCY) is a master limited partnership that acquires and develops oil and natural gas properties in the Permian Basin, Mid-Continent, and Rocky Mountain regions, with interests in more than 660 fields and 8,000-plus producing wells.
And while we tend to think of oil and gas as fuels, they are also feed stocks for making things. In plants called "crackers,"Â natural gas is broken down into ethylene. From ethylene, we produce all the world's biggest plastics.
Today, there are ten new world-scale crackers being built on the back of all the new shale gas coming out of the ground.
When natural gas is cooled to very low temperatures, it reduces its volume sharply, making it practical to transport over long distances.
As a result, a huge new market is developing for the export of liquefied natural gas (LNG). Petrochemical exports from the United States should hit $30 billion in less than five years.
Legacy Reserves is a great way to play this new boom. I estimate it will earn more than $1 a share this year and as much as $1.50 in 2015. That's more than enough to support—and increase—the current yield of 7.7%.
I'm not the only one keen on this stock right now, incidentally. The insiders own almost 20% of the outstanding shares here. And in the past week, Directors Dale and Cary Brown each bought another $5-million worth. I suggest you follow their lead.
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