Geopolitical Shocks Fuel the North American LNG Boom

The geopolitical disruptions in the Middle East have fundamentally shifted global perceptions of energy reliability. Consequently, global buyers are increasingly likely to view North American liquefied natural gas (LNG) suppliers as an attractive choice for energy security. With traditional supply routes interrupted, U.S. and Canadian midstream infrastructure assets are positioning themselves to capture long-term structural growth.

Key Takeaways

• Supply disruptions in the Middle East triggered immediate price spikes in Europe and Asia, while infrastructure damage has knocked 17% of LNG capacity from Qatar offline for the next three to five years.
• U.S. LNG export capacity is projected to nearly double by 2031, with over 18 billion cubic feet per day (Bcf/d) of capacity currently under construction.
• The structural shift toward reliable North American energy exports could provide a significant volume tailwind for energy infrastructure ETFs like AMLP and ENFR.

The Middle East Disruption and the Reliability Premium

In a recent webcast, Stacey Morris, head of energy research at VettaFi, highlighted the immediate impact of recent shipping vulnerabilities. “20% of global LNG trade was flowing through the Strait of Hormuz that was primarily coming from Qatar,” Morris noted. Following significant facility damage, “17% of that capacity — or about 1.7 billion cubic feet per day — is going to be offline for three to five years as they repair that.” 

This disruption to flows through the Strait created immediate price spikes in Europe and Asia. North American LNG suppliers are quickly gaining favor, as they do not have the choke-point risks that characterize Middle Eastern suppliers. As ONEOK (OKE) management recently noted during its earnings call, global buyers are learning that the most expensive energy is ultimately the energy that fails to show up.

Long-Term Structural Advantages and LNG Capacity Expansion

Before the conflict there was substantial LNG capacity expansion underway in the U.S., but tailwinds have only increased. In mid-May, another major project Commonwealth LNG greenlit construction, bringing total U.S. LNG capacity currently under construction to over 18 Bcf/d, according to Morris. With this momentum, total North American export capacity should nearly double by 2031. Liquefaction players Cheniere Energy (LNG) and Venture Global (VG) are both evaluating additional expansion projects that could further add to U.S. export capacity.

Canada offers additional geographic and logistical advantages. Crucially, Canada’s LNG terminals on its West Coast enjoy proximity to Asian markets. This location completely avoids the bottleneck of the Panama Canal. Canada is positioning itself as a dependable alternative with two major projects, where midstream companies have interests, that are under construction and will be online in the coming years. These include Woodfibre LNG (0.3 Bcf/d), where Enbridge (ENB CN) owns a 30% stake, and Cedar LNG (0.4 Bcf/d), in which Pembina (PPL CN) has a 49.9% interest. 

How to Get Exposure via ETFs

Importantly, midstream companies provide the infrastructure to support production and export growth by connecting production sites to coastal LNG facilities. 

For advisors seeking targeted exposure to this opportunity, midstream ETFs offer a compelling opportunity. The Alerian MLP ETF (AMLP), the industry’s largest MLP ETF, provides concentrated exposure to MLPs. Meanwhile, the Alerian Energy Infrastructure ETF (ENFR) offers a more diversified approach, incorporating C-corps like Enbridge and Pembina. ENFR remains the lowest-fee ETF in the midstream segment.

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vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for AMLP and ENFR for which it receives an index licensing fee. However, AMLP and ENFR are not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of AMLP or ENFR.

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