Natural Gas Prices Surge, Gas Producers Poised for Spotlight
After playing second fiddle to oil for most of the year, natural gas prices are heating up once again, and analysts believe that gas producers have the potential to steal the spotlight from their oil counterparts. While oil prices have been on a downward trend due to declining demand for gasoline, natural gas futures have seen a significant surge. Trading at $3.34 per million British thermal units (MMBtu), natural gas prices have risen by 33% in the past month and an impressive 68% since hitting a 52-week low in March.
The largest U.S. producer, EQT, reported a loss of $67 million in its latest quarter, a stark contrast to the $891 million it earned a year ago. However, analysts remain optimistic about the future of natural gas. In 2022, natural gas prices are projected to average $6.45 per MMBtu, driven by increased gas exports to Europe. Europe’s reliance on U.S. gas has grown after it stopped importing gas from Russia following the Ukraine invasion. Although natural gas prices declined towards the end of the year due to a mild winter in Europe, recent developments suggest a revival in natural gas demand.
Several factors contribute to the recent surge in natural gas demand. As temperatures soared to record highs in various parts of the country, the need for air conditioning increased, resulting in higher electricity consumption generated by natural gas. Additionally, weather forecasters predict a rise in gas demand this winter due to the El Niño weather pattern, which typically leads to colder winters and increased natural gas usage for heating. Moreover, the U.S.-Mexico trade deal has prompted more factories to move to Mexico, leading to a higher demand for gas from the U.S.
On the supply side, the U.S. entered the year with an oversupply of natural gas. However, producers began reducing the number of rigs in operation due to low prices, resulting in a decrease of over 20% since May. This reduction in supply growth, coupled with rising demand, has narrowed the gap between supply and demand. Furthermore, the U.S. is building more terminals to export liquefied natural gas (LNG) overseas, providing producers with access to lucrative markets in Europe and Asia.
Analyst Nitin Kumar from Mizuho Securities recommends several stocks to capitalize on the natural gas boom, including Coterra, EQT, Range Resources, and Antero Resources. Coterra stands out due to its exposure to both oil and gas, providing more flexibility than other natural gas companies. EQT, as a pure-play gas operator, is expected to benefit from the industry’s rebound. Range Resources, with significant gas exports to the Gulf Coast, is poised to leverage the growing LNG market. Antero Resources, being more sensitive to natural gas price changes, is likely to rebound quickly if prices continue to rise.
While oil has dominated the energy sector headlines this year, natural gas is now taking center stage. With prices on the rise and increased demand expected, gas producers have a prime opportunity to shine in the energy market.