Freezing Weather Pushes Up Heating Demand, Natural Gas Price
The U.S. Energy Department's weekly inventory release showed a larger-than-expected increase in natural gas supplies. Despite the negative inventory numbers, futures jumped more than 7% week over week thanks to bone-chilling temperatures that drove heating load demand across much of the Lower 48.
At the same time, there appears to be some uncertainty associated with the extended outage at the nation’s biggest LNG export plant at Freeport. In this context, it would be wise to build a position in quality names such as Cheniere Energy LNG, EQT Corporation EQT and Comstock Resources CRK.
EIA Reports a Build Larger Than Market Expectations
Stockpiles held in underground storage in the lower 48 states rose 64 billion cubic feet (Bcf) for the week ended Nov 11, exceeding the guidance of a 62 Bcf addition per the analysts surveyed by S&P Global Commodity Insights.
While the increase was well above last year’s injection of 23 Bcf for the same corresponding week, it contrasted with the five-year (2017-2021) average net shrinkage of 5 Bcf.
The latest increment puts total natural gas stocks at 3,644 Bcf, which is essentially in line with the 2021 level at this time and the five-year average.
The total supply of natural gas averaged 107.1 Bcf per day, up 3.2 Bcf per day on a weekly basis due to an increase in dry production and higher shipments from Canada.
Meanwhile, daily consumption jumped 19.9% to 115.6 Bcf from 96.4 Bcf in the previous week, mainly reflecting a stronger power burn and increased residential/commercial demand spurred by below-normal temperatures.
Natural Gas Still Logs a Healthy Weekly Gain
Natural gas prices trended upward last week, despite the higher-than-expected inventory build. Futures for December delivery ended Friday at $6.3030 on the New York Mercantile Exchange, rising around 7.2% from the previous week’s closing. The increase in natural gas realization — for the second straight week — is the result of heavy snow and bitterly cold weather.
As is the norm with natural gas, changes in temperature and weather forecasts can lead to price swings. The latest models anticipate strong temperature-driven consumption over the near term (with extensive use of heater across homes and businesses), which is a positive for prices.
Another thing supporting natural gas is a stable demand catalyst in the form of continued strong LNG feedgas deliveries. LNG shipments for export from the United States have been robust for months on the back of environmental reasons and record-high prices of the super-chilled fuel elsewhere. Now, with the Russia-Ukraine conflict, LNG has become even more coveted. As a matter of fact, earlier this year, the United States entered into a partnership with the EU to export additional LNG to wean the bloc off its dependence on Russian natural gas supplies. This means LNG deliveries are poised to rise further, especially with squeezed natural gas supplies from Moscow to Europe following leaks in the key Nord Stream pipeline.
However, the protracted downtime associated with the fire breakout at the Freeport LNG export plant in Texas has drowned out some of the positives as of now. The Quintana, TX facility — responsible for around 15% of U.S. liquefaction capacity — was knocked offline by the Jun 8 blast and is expected to only partially restart in mid-December after several missed target dates. Consequently, some of the LNG cargoes due for export are likely to have been diverted to the domestic market despite huge demand abroad.
Final Thoughts
Despite some hiccups in between, the natural gas market is still up almost 70% so far this year. While fundamental indicators continue to suggest strong price levels, the natural gas market is currently quite unpredictable and spooked by the sudden changes in weather. As such, investors are rather unsure of what to do. As of now, the lingering uncertainty over the fuel means that they should preferably opt for fundamentally strong stocks like Cheniere Energy, EQT and Comstock Resources.
Cheniere Energy: The company is valued at around $41.7 billion. LNG reported EPS of $7.80 for the third quarter, reflecting a 42.9% surprise over consensus.
Cheniere Energy has a projected earnings growth rate of 157.4% for the current year. The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) natural gas exporter’s fourth-quarter earnings has been revised 150.8% upward over the past 60 days. LNG shares have climbed 63.1% in a year.
You can see the complete list of today’s Zacks #1 Rank stocks here.
EQT: EQT is primarily an explorer and producer of natural gas, with the primary focus on the Appalachian Basin in Ohio, Pennsylvania and West Virginia. In terms of average daily sales volumes, EQT is the largest natural gas producer in the domestic market.
The company has an expected earnings growth rate of 362% for the current year. The Zacks Consensus Estimate for EQT’s 2022 earnings has been revised 1.9% upward over the past 60 days. EQT — valued at around $15.1 billion — has soared 96.4% n this year.
Comstock Resources: The company is active in the Haynesville shale in North Louisiana and East Texas — a premier natural gas basin. As of now, CRK has a projected earnings growth rate of 219% for the current year.
The Zacks Consensus Estimate for Comstock Resources’ 2022 earnings has been revised 11.1% upward over the past 90 days. CRK shares have surged 109.4% so far this year.
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