Institutional investors bought midstream stocks in Q1 amid strong gas demand

Institutional investors were net buyers of top publicly traded midstream companies in North America during the first quarter, and most of the activity centered on pipeline giants that have exposure to surging U.S. LNG exports.

Some of the major pipeline companies saw notable gains in institutional ownership during the period, an S&P Global Market Intelligence analysis of SEC filings showed. Energy Transfer LP was institutional investors' top purchase out of the group, followed by Kinder Morgan Inc. and Enbridge Inc.

LNG connection

All three pipeline companies are significant transporters of natural gas to LNG facilities on the Gulf Coast at a time when expectations are building among industry participants that the U.S. is on the cusp of the next supercycle of constructing new U.S. LNG capacity. Midstream executives, like other natural gas industry players, have described strong global gas demand — accelerated by the European gas crisis — as a dynamic supporting their companies' growth ambitions.

Energy Transfer in recent months also built significant commercial momentum in support of its stalled Lake Charles LNG export facility. The company has said it now expects to reach a final investment decision on the project by the end of 2022.

Kinder Morgan, which transports about half the gas delivered to U.S. LNG export terminals, expects growing global demand for new U.S. LNG capacity to drive investment in other midstream expansions. The company has been in talks about boosting its Permian Highway pipeline and Gulf Coast Express pipeline by up to 1.2 Bcf/d, expansions that could be in service as early as the fourth quarter of 2023.

Enbridge was also looking at natural gas pipeline growth to serve LNG hubs on the U.S. Gulf Coast and in Western Canada. It could move forward with its Rio Bravo pipeline from the Corpus Christi region to Brownsville, Texas, if the proposed Rio Grande LNG export project advances.

Sea change

Some analysts in recent quarters pointed to a paradigm shift in North American midstream equities. The sector's era of constructing large pipeline projects appeared to have passed, with swings in U.S. production increasingly viewed as a key driver of future cash flows over capital expenditures, construction and contracting new gas transportation customers.

But investors headed into the 2022 first-quarter midstream earnings season were watching for signs that the sector would pursue new infrastructure growth opportunities fostered by high commodity prices and a shift in sentiment toward oil and gas following the energy crisis in Europe.

Plains All American Pipeline LP saw the largest sell-off during the quarter, with institutional investors shedding about 12.5 million shares of their combined positions in the company. Plains experienced the biggest decline in aggregate institutional ownership as a percentage of its total institutional shares, but this was only about 2.3%.

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