The Pullback In Natural Gas Has Created An Opportunity

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U.S. natural gas prices have hit a fresh six-week low, closing at $7.75/MMBtu on Monday with the Wall Street Journal saying that the market has lost momentum due to U.S. production topping 100 Bcf/day for the first time ever. The odds are now that ample U.S. production will be enough to meet local demand in the final months before winter arrives. Prices are likely to remain depressed unless there’s a breakout of storm activity in the Gulf of Mexico which could disrupt production.

  Meanwhile, benchmark European gas prices have continued to fall, dropping nearly 9% on Monday to their lowest in two months thanks to  European energy markets improving due to a combination of successful policy action as well as a price-induced demand response. Indeed, Germany’s economic minister Robert Habeck has revealed that the country’s natural gas storage levels are nearing 90% thus giving it a chance of weathering the winter season. He has, however, warned that gas storage will likely be empty by the end of winter.

Naturally, natural gas and LNG stocks have lost some momentum alongside the commodity they track. For instance, the United States Natural Gas Fund, LP (NYSEARCA: LNG) is down 20.3% over the past 30 days but is still 108.9% up in the year-to-date. However, the structural tailwinds are likely to continue outweighing “cyclical headwinds” as Strategas Securities LLC partner and head of technical analysis Christopher Verrone told Bloomberg. Investors should, therefore, use the latest pullback in gas stocks as a buying opportunity. Here are some top picks.

  • Cheniere Energy

Market Cap: 42.1B

YTD Returns: 64.0%      

Cheniere Energy, Inc. (NYSE: LNG) is an energy infrastructure company that primarily engages in the liquefied natural gas (LNG) related businesses in the United States. Cheniere is one of the few pure-play LNG companies in the United States; the company owns and operates the Sabine Pass LNG terminal in Cameron Parish, Louisiana; and the Corpus Christi LNG terminal near Corpus Christi, Texas. The company also owns Creole Trail pipeline, a 94-mile pipeline interconnecting the Sabine Pass LNG terminal with various interstate pipelines; and operates Corpus Christi pipeline, a 21.5-mile natural gas supply pipeline that interconnects the Corpus Christi LNG terminal with various interstate and intrastate natural gas pipelines. 

Related: Private Equity Scoops Up Oil And Gas Assets

Back in March, the DoE approved expanded permits for Cheniere Energy’s Sabine Pass terminal in Louisiana and its Corpus Christi plant in Texas. The approvals allow the terminals to export the equivalent of 0.72 billion cubic feet of LNG per day to any country with which the United States does not have a free trade agreement, including all of Europe. Cheniere says the facilities already are making more gas than is covered by previous export permits.

  •  EQT Corp.

 Market Cap: 13.6B

 YTD Returns: 78.0%     

EQT Corporation (NYSE: EQT) operates as a natural gas production company in the United States. The company produces natural gas, natural gas liquids (NGLs), including ethane, propane, isobutane, butane, and natural gasoline. 

As of December 31, 2021, EQT had 25.0 trillion cubic feet of proved natural gas, NGLs, and crude oil reserves across approximately 2.0 million gross acres, including 1.7 million gross acres in the Marcellus play. 

EQT Corp. has unveiled a plan centered on producing more liquified natural gas by dramatically increasing natural gas drilling in Appalachia and around the country’s shale basins, as well as pipeline and export terminal capacity, which it said would not only boost United States energy security, but also help break the global reliance on coal and on countries like Russia and Iran.

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