Lower prices, reduced environmental impact and safety continue to fuel Americans’ ongoing conversions of heating systems to from fuel oil and other alternatives to natural gas, wherever supplies become available, explains Roger Conrad, editor of Conrad's Utility Investor.
That’s not only fueled natural gas utilities’ reliable earnings and dividend growth. It’s made them attractive as takeover candidates as well.
If and when production costs fall far enough, lower cost solar combined with battery storage could be a meaningful competitor to gas as a heat source.
Until then, however, cheap and abundant natural gas will continue to grab market share from alternatives especially heating oil whenever and wherever new gas distribution lines get built.
Propane distributors are also at risk to natural gas swapping. But the fuel continues to have three advantages that ensure market share. First, it’s most heavily used in rural areas where it’s prohibitively expensive to build new gas pipelines.
Second, like natural gas and unlike coal and heating oil, it’s a relatively clean burning fuel. And third, it’s a highly flexible fuel that can be transported safely to remote places, making it an ideal pairing with solar in a world where battery powered storage is far more expensive.
Amerigas Partners (APU) combines those advantages with unmatched scale and reach. These enable the propane distributor to control costs including for wholesale propane, establish revenue streams such as cylinder exchange, build a customer base of national accounts and balance out mild weather in some regions with colder in others.
Management has increased its edge by raising its game for data usage and digitization of operations. Earnings can vary wildly from year to year depending on temperatures.
And several mild winters combined with currently inhospitable capital markets for MLPs have put distribution growth at least temporarily on hold. But yielding nearly 10 percent, Amerigas units are cheap at a price of 45 or lower.
