Portfolio Manager Call Recap: The Evolving Role of Natural Gas

Portfolio Manager Ryan Kelley, and American Gas Association (AGA) executives Gary Gardner, Vice President of Corporate Affairs, and Richard Meyer, Managing Director, Energy Markets, shared their insights on the natural gas industry as well as investment opportunities.

February 2021
  • Ryan C. Kelley
    Ryan C. Kelley, CFA
    Chief Investment Officer and Portfolio Manager

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Top Takeaways

  • Due to extreme weather conditions on 2/14 and 2/15, the U.S. set an all-time, two-day record for natural gas deliveries.
  •  While natural gas production decreased by roughly 20% due to freezing temperatures, service from natural gas utilities directly to customers was largely uninterrupted during the event.
  • Since the onset of the pandemic, residential demand for natural gas has remained strong. Commercial and industrial demand had declined during the government-mandated shutdowns, but has since begun to recover.
  • Long-term infrastructure, pipeline safety, and modernization projects proceeded as planned in 2020, with approximately $36 billion invested through gas utility construction expenditures, higher than in 2019, and investment looks to be strong in the years ahead.
  •  U.S. carbon dioxide emissions have declined to the lowest level in nearly three decades. As we pursue a lower-carbon energy economy, gas utilities will play a major role as they continue to deliver gas cleanly and efficiently and utilize infrastructure to distribute the energy sources of the future.
  •  U.S. LNG exports were at record levels as we entered 2020. While volumes declined during the pandemic, 2020 ended with record LNG levels, which could more than double over the next decade.
  • The Hennessy Gas Utility Fund includes companies involved in the distribution and delivery of natural gas and is comprised of multi/electric utilities (60%); pure play natural gas distribution utilities (15%); and interstate pipeline and LNG companies (15%).
  • Approximately 2/3 of our portfolio companies produce electricity, and about 90% of those have solar, wind, or hydroelectric energy generation capabilities.
  • Utility valuations are compelling, trading at 17× their 2021 earnings, in line with their long-term average, but at 75% of the S&P 500 Index’s 23× as of 3/1/21.
  • 44 of the Fund’s 48 holdings pay a dividend, with an average yield of 3.9%, and their dividend growth rate has averaged 4% per year for the last three years as of 3/1/21.