The quest for specific types of energy sources can cause one country or company to be at an advantage over another country. Mexico is a country that over the past decade, and into the foreseeable future, is planning to expand its reliance on natural gas. For energy companies in the U.S. this need poses an opportunity. Where a need exists an investment opportunity is born.
For over the past decade Mexico has substantially increased its capacity to generate energy via natural gas power. Between 1999-2009 natural gas power generation in Mexico has increase 257%. The Federal Electricity Commission of Mexico is still continuing its push for more natural gas powered plants. According to Barclays, in 2024 an additional 19,000 MW of natural gas plants could be brought online.
The Barclays report goes on to discuss how the push for natural gas fired plants is causing a surge in liquid natural gas (LNG) imports via various sea ports in Mexico. Though shipping is effective in getting greater supplies to Mexico, the more efficient way would be direct pipeline transfers from the U.S. The capacity exists and if the expansion of natural gas plants in Mexico continues, the lines will be utilized to a greater extent than ever before.
Assuming that Mexico is years away from establishing domestic production to counteract the need for substantial imports, how can an investor benefit from Mexico’s natural gas need? If pipelines make the most sense in terms of efficiency and economics, then what companies exist that already have lines running into Mexico for natural gas transfers?
One company that operates in the San Diego area of California, but has natural gas pipeline exposure in Mexico is Sempra Energy (SRE). SRE is utility company with a market cap of 12.5 billion. It has a 3.6% annual dividend yield. Its last quarterly dividend payment increased its dividend from .39 to .48 (a 23% increase). Its payout ratio is 45% and has a beta of .5
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SRE is a value stock, but is likely to find itself in a beneficial situation with Mexico’s increasing demand for natural gas. A portion of SRE’s business lines are dedicated to the operation of LNG receipt terminals in the U.S. and Mexico and the pipeline and gas storage facilities that run from the U.S. into Mexico. SRE is well positioned to capitalize on growing Mexican hunger for natural gas.
As I have written before, I constantly look for value companies that have some form of a growth component in their business model. In such cases investors can capitalize on the best of both worlds; growth and value. In a climate where Mexico needs more natural gas and the U.S. has an oversupply, SRE is one company that already has the infrastructure necessary to fulfill the need.
Whether it is SRE or another company with pipelines or some other natural gas exposure in Mexico, you are aware of a trend for at least the next decade. Now is the time to find well positioned companies and begin to place your portfolio in a position to thrive.
Disclosure: No Position