Vanguard Natural Resources, LLC (VNR), Cheniere Energy, Inc. (LNG), Clean Energy Fuels Corp (CLNE): The Future of Natural Gas in 2 Slides

Oil and natural gas producer Vanguard Natural Resources, LLC (NASDAQ:VNR) likes to go against the grain. While most of its peers have been focused on acquiring or developing oil-rich assets, Vanguard Natural Resources, LLC (NASDAQ:VNR) has been shopping in the clearance isle and stocking up on natural gas. It’s a move that could pay off handsomely in a couple of years as the supply and demand balance for natural gas begins to shift.

Vanguard Natural Resources, LLC (NASDAQ:VNR)’s business model is pretty simple. It buys up oil and gas reserves and then locks in the margins of the future production by hedging it for the long term. In its most recent natural gas acquisitions, the company was able to pick up dirt cheap assets that will earn a fair profit on the production over the next few years. However, over the longer term, those assets could turn out to be a real gem as the supply and demand imbalance for natural gas begins to shift. The following slide breaks down those fundamentals:

Source: Vanguard Natural Resources Investor Presentation (link opens a PDF).

Clearly, the biggest demand driver will come from already approved natural gas export terminals such as Cheniere Energy, Inc. (NYSEAMEX:LNG)‘s Sabine Pass. These projects will sop up a big portion of the increase in natural gas production over the next few years. As the slide shows, by 2018 we should be exporting about 5.6 billion cubic feet of natural gas per day, or Bcf/d. For some perspective, as of this past May, natural gas production in the contiguous 48 states was 73.37 Bcf/d, meaning these future approved exports would equate to less than 8% of current production.

Another major future demand driver will come from transportation, where gas-to-liquids and compressed natural gas, or CNG are expected to sop up another 3.1 Bcf/d of incremental demand. Driving this demand, at least on the CNG side, is Clean Energy Fuels Corp (NASDAQ:CLNE), which is building America’s Natural Gas Highway. What should be noted, though, is that Clean Energy Fuels Corp (NASDAQ:CLNE) has a lot more potential outside the CNG market. While CNG has the potential to displace 5.5 billion gallons of fuel per year in transit buses and garbage trucks, the bigger market is the LNG potential for the long-haul truck market, which is a 25 billion-gallon-a-year market. If Clean Energy Fuels Corp (NASDAQ:CLNE) can make inroads into that market, it could add significant demand for natural gas in the coming years that’s not reflected on the next chart.

Source: Vanguard Natural Resources.