Natural gas liquids are a product of fossil fuel companies that do not receive very much coverage in the media. It is difficult to understand why as these products play a vital part in our daily lives. In fact, the importance of these products is such that they provide a very good reason why the fossil fuel industry will not be rendered obsolete by electrification anytime in the near future. Investors that understand the importance of these products can make some appropriate investments that should be able to pay off for years to come.

What Are Natural Gas Liquids?

The U.S. Energy Information Administration provides a basic description of natural gas liquids on its website:

Natural gas liquids (NGLs) are hydrocarbons - in the same family of molecules as natural gas and crude oil, composed exclusively of carbon and hydrogen. Ethane, propane, butane, isobutane, and pentane are all NGLs. There are many uses for NGLs, spanning nearly all sectors of the economy. NGLs are used as inputs for petrochemical plants, burned for space heat and cooking, and blended into vehicle fuel.

Natural gas liquids are components of natural gas that are separated from the gas state in the form of liquids. This typically occurs in a natural gas processing plant, such as those operated by midstream companies like Crestwood Equity Partners (CEQP). The separation is typically done via absorption or condensation, but there are other methods that can be used to produce them.

How Are Natural Gas Liquids Used?

The usage of these substances is much more important for understanding the investment case here than their production. There are in fact a number of useful applications for these substances:

Source: U.S. EIA

As we can clearly see, several of these applications will be needed even if the world does fully convert to electricity as a power source. In particular, plastics are found in nearly everything that we use today.

The chart from the Energy Information Administration excludes a few important uses that make these compounds irreplaceable. This is somewhat surprising considering that the EIA is usually fairly neutral when it comes to pushing the "green energy" narrative. In particular, natural gas liquids are used in the production of many different healthcare products, including certain medicines. They are also used in the production of batteries for electric cars and renewable energy storage. Thus, should all fossil fuel production stop, it will become impossible to construct batteries, effectively dooming most renewable technologies that we have today.

Fundamentals For NGLs

Simply by looking at the uses of natural gas liquids, it should be fairly obvious that the demand for them will not go away anytime soon. However, it is likely that the demand will actually increase going forward. In fact, S&P Global Platts predicts that the global demand for liquefied petroleum gas (propane) will increase by 20% over the next two decades. The demand for ethane, meanwhile, will increase by a whopping 60% over the same time period:

Source: ONEOK/Data from S&P Global Platts

The demand for ethane is particularly noteworthy but also not unexpected. Ethane is a substance that is used to make plastics, which are omnipresent in our lives and cannot be replaced by anything that we currently have. It is likely that we will continue to use plastics going forward and that we will use significantly more of them due to a growing population and emerging economies continuing to grow and prosper over the projection period.

How To Profit

There are a few ways to profit from this growing demand. The first method is to purchase shares of those companies that produce or transport natural gas liquids. We discussed one such company a few days ago at Energy Profits in Dividends. This company pays out a fairly impressive current dividend yield that is likely to grow over the coming years. There are a few other companies that will be discussed on the service over the coming few days but you will only be able to see these exclusive reports if you subscribe.

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