What Is LNG 'Midstream'... and Why Is This ETF Worth Watching? [Weekend Money]

LNG Supply Chain Restructures Around the U.S.
Rising Importance of 'Midstream'—Liquefaction, Transport, Storage, Regasification
Surge in Data Center Electricity Demand Also Provides Support

Following the United States-Iran war, LNG (liquefied natural gas) supply from the Middle East has plummeted, prompting a restructuring of the global supply chain. As the United States takes a central role in establishing new LNG supply networks, the importance of the 'midstream' segment—which connects production sites to consumer markets—is increasing.

Goh Kyungbeom, a research analyst at Yuanta Securities, commented, "Since the war, final investment decisions (FID) for new LNG projects have centered on the United States, placing the U.S. at the forefront of global LNG supply." He added, "In this process of diversifying LNG supply chains away from a Middle East-centric model towards a U.S.-focused one, attention should be paid to the natural gas infrastructure and the midstream sector, which underpin the expansion of LNG supply."

Reuters Yonhap News

Goh emphasized that, in addition to existing domestic demand for power generation and heating, global LNG demand is turning LNG exports into a critical new outlet for U.S. natural gas. The oil and gas industry is divided into three main segments: 'upstream' (exploration, drilling, and production), 'midstream' (liquefaction, transportation, storage, and regasification), and 'downstream' (distribution, delivery, and consumption). Put simply, the midstream sector serves as the vital logistical and processing bridge between production and consumption.

One factor driving the expanding role of the midstream sector is the surge in electricity demand from data centers. Currently, more than 40% of U.S. data center electricity is supplied through natural gas generation. According to BloombergNEF, as much as 69% of new U.S. data center electricity demand through 2035 is expected to be supplied by natural gas. Goh explained, "With electricity demand rapidly increasing—especially from data centers—there will be a corresponding rise in demand for natural gas infrastructure."

Additionally, midstream companies can secure stable cash flows thanks to 'take-or-pay' contract structures, where customers must pay even if they do not physically take the agreed volumes. Goh stated, "Midstream companies secure profit through long-term transportation and take-or-pay contracts, collecting fees on a guaranteed minimum quantity." He further noted, "As a result, they are relatively less exposed to direct fluctuations in natural gas prices and demand, allowing for more stable earnings generation."

As a related investment option, he recommended the 'Global X MLP & Energy Infrastructure ETF (MLPX).' This product invests in publicly traded master limited partnerships (MLP) and related companies that own or operate energy infrastructure, with 76.8% exposure to natural gas infrastructure within the energy infrastructure ETF sphere. As of September 21 (local time), the ETF's top holdings include Williams Companies at 13.01%, TC Energy at 12.36%, Enbridge at 12.12%, Kinder Morgan at 11.56%, and ONEOK at 11.05%.

This content was produced with the assistance of AI translation services.