Investing in New York's Natural Gas Infrastructure

NYC Explosion Levels Buildings!

By
Wednesday, March 19th, 2014

HarlemexplosionLast Wednesday, I read the headline, “NYC Explosion Levels Building.”

I won't lie. My first reaction was that it was some kind of terrorist attack. Sadly, like most Americans these days, this is how my mind has been reluctantly reprogrammed.

Fortunately, it wasn't a terrorist event. Unfortunately, it was essentially something just as bad. The explosion wasn't the result of homemade explosives or hijacked airplanes. Instead, it was the result of apathy.

You see, last week, eight people were killed after a natural gas explosion leveled a five-story building in East Harlem, NY. A 127-year-old gas main is being blamed. But the reality is, you can't blame a gas main. No, blame falls solely on those responsible for maintaining the integrity of that gas main. And over the past few years, we've witnessed an increase in infrastructure failures. Some have been right here in my hometown of Baltimore.

Now some will point to the utilities as these evil institutions that are so focused on cost that they don't take the necessary precautions to ensure these types of things don't happen. And certainly much of the responsibility for safety should fall on the utilities. However, I would argue that consumers are just as guilty. This is because gas and electric customers are the first to cry foul over rate increases that are necessary to ensure infrastructure reliability.

It's a tough sell for the utilities, because John Q. Public doesn't even know where his power comes from or what's involved in producing and distributing natural gas in a safe manner. He just wants to jack up the heat during the winter and blast the air condition in the summer with no worries. And he doesn't want to pay a penny more.

This is an arrogant way to live, yet it's how most of us see things. In any event, the reality is that the days of cheap power are over. Sure, natural gas is practically free nowadays, but the cost to secure and move that resource will only continue to rise. And don't think for a second that you won't be paying your fair share.

$2 Trillion

Earlier this year, I told you about how the American Society for Civil Engineers (ASCE) released its 2013 report card for America's water infrastructure. It got a D!

According to the ASCE, much of our drinking water infrastructure today is nearing the end of its life. There are an estimated 240,000 water main breaks every year in the U.S. Assuming every pipe would need to be replaced, the cost in the coming decades could reach more than $2 trillion.

My friends, on top of century-old infrastructure, throw in a growing trend of extreme temperatures and catastrophic floods, and you've got the recipe for both a major crisis and a major opportunity.

And while we can't personally control the crisis, we can capitalize on the opportunity by picking up a few quality water infrastructure plays.

Here are some of the leading water infrastructure stocks I like:

  • Watts Water Technologies (NYSE: WTS)

  • Northwest Pipe Co. (NASDAQ: NWPX)

  • Mueller Water Products (NYSE: MWA)

  • Flowserve Corp. (NYSE: FLS)

I still maintain that the water infrastructure space is a great investment opportunity. But it doesn't stop at water. In fact, the infrastructure for oil and gas is just as lucrative, if not more so than water infrastructure.

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A Ticking Time Bomb

Much like that of today's water infrastructure, the problem with much of today's natural gas infrastructure is that it's simply too old to work safely and efficiently.

You see, in many of our largest and oldest cities, we're relying on century-old cast iron pipes. These are prone to leaks in comparison to the plastic and protected steel pipes that are used in new infrastructure projects.

Here are the top 10 cities that have the highest risk of leaks coming from old, cast iron pipes (according to recent analysis from Platts):

pipechart

While there's undoubtedly a mountain of cash to be made in domestic oil and gas production, if you haven't already, make sure to leave a little room for oil and gas infrastructure. As well, be sure to jump on the major players, like the Petroplex and the rig rental plays. There are plenty of angles here, and you should definitely have exposure to all of these.

Make no mistake, this is a huge opportunity that'll only become more attractive as our energy economy continues to transition to one that will be heavily weighted in natural gas.

To a new way of life, and a new generation of wealth. . .

Jeff Siegel Signature

Jeff Siegel


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