Natural Gas Stalls for 8th Week, Still Up Significantly YTD
The U.S. Energy Department's weekly inventory release showed a larger-than-expected increase in natural gas supplies. The negative inventory numbers, coupled with other factors, meant that futures fell for the eighth week in a row to settle at its lowest level in almost three months.
Despite this, the market has been kind to natural gas in 2022, with the commodity trading considerably higher year to date and hitting $10 for the first time since 2008. Natural gas stocks like EQT Corporation EQT, Comstock Resources CRK and Range Resources RRC have been some of the prime beneficiaries of the price appreciation.
EIA Reports a Build Larger Than Market Expectations
Stockpiles held in underground storage in the lower 48 states rose 125 billion cubic feet (Bcf) for the week ended Oct 7, exceeding the guidance of a 123 Bcf addition per the analysts surveyed by S&P Global Commodity Insights.
The increase was also well above last year’s injection of 86 Bcf for the same corresponding week and the five-year (2017-2021) average net build of 82 Bcf.
The latest increment puts total natural gas stocks at 3,231 Bcf, which is still 126 Bcf (3.8%) below the 2021 level at this time and 221 Bcf (6.4%) lower than the five-year average.
The total supply of natural gas averaged 105.4 Bcf per day, down 1.1 Bcf per day on a weekly basis due to a dip in dry production (from its record level) and lower shipments from Canada
Meanwhile, daily consumption rose 1.8% to 91.3 Bcf from 89.7 Bcf in the previous week, mainly reflecting a stronger power burn and increased residential/commercial demand.
Natural Gas Logs its Eighth Straight Weekly Fall
Natural gas prices tumbled last week, following the higher-than-expected inventory build. Futures for November delivery ended Friday at $6.453 on the New York Mercantile Exchange, falling around 4.4% from the previous week’s closing. The decrease in natural gas realization — for the eighth straight week — is also the result of a boom in supplies and the prediction of mild ‘shoulder season’ weather.
As is the norm with natural gas, changes in temperature and weather forecasts can lead to price swings. The latest models anticipate light temperature-driven consumption over the near term (with little use of air conditioning or heater across much of the Lower 48), which is a negative for prices.
An increase in natural gas production has also kept the commodity in check. With the upstream operators finally responding to price incentives and ramping up volumes in the last two months, daily production has topped or hovered around 100 Bcf in recent weeks. This wave of new supply is expected to largely neutralize concerns that the market might enter the winter withdrawal season with gas in storage well below normal. Having said that, current inventories are still pretty tight and remain more than 6% below their five-year average.
The one 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 natural gas supplies from Moscow to Europe squeezed 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 most 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 November. 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 posting an eighth straight down week with combined losses of around 30% during this period, the natural gas market is still up almost 75% so far this year. As one would expect, the loss in momentum since mid-August has also pushed gas stocks down. However, certain companies like EQT, Comstock Resources and Range Resources have handsomely benefited from the windfall from higher natural gas prices year to date.
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EQT: EQT is primarily an explorer and producer of natural gas, with a 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, carrying a Zacks Rank #2 (Buy), has an expected earnings growth rate of 365.2% for the current year. The Zacks Consensus Estimate for EQT’s 2022 earnings has been revised 12.3% upward over the past 60 days. EQT — valued at around $15.2 billion — has soared 88.6% n this year.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Comstock Resources: The company is active in the Haynesville shale in North Louisiana and East Texas — a premier natural gas basin. Currently, a Zacks #2 Ranked stock, CRK has a projected earnings growth rate of 231.9% for the current year.
The Zacks Consensus Estimate for Comstock Resources’ 2022 earnings has been revised 10.6% upward over the past 60 days. CRK shares have surged around 113.9% so far this year.
Range Resources: The upstream firm has a strong footing in the prolific Appalachian Basin. In the gas-rich resource, RRC has huge inventories of low-risk drilling sites that are likely to provide production for several decades.
Range Resources has a projected earnings growth rate of 167.8% for the current year. The Zacks Consensus Estimate for this Zacks Rank #3 (Hold) natural gas player’s 2022 earnings has been revised 1.3% upward over the past 60 days. RRC shares have climbed 51% year to date.
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