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Natural Gas Hits Highest Price in 2020: 5 Stocks in Focus

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Natural gas prices surged Friday on rising expectations for cooling demand as forecast models turned warmer through September. Already on the back of a scorching June and July, and continued heat wave in August, the latest weather outlook calls for a further ramp-up in air conditioning use. Riding on this positive momentum, natural gas prices ended the week at an eight-month high of $2.356 per MMBtu. 

In fact, the onset of hotter weather has helped lift natural gas prices by nearly 60% since late June, when they hit their lowest level since 1995. With the commodity being the primary U.S. power plant fuel, firms in natural gas business are set to benefit from the bump in cooling demand. 

Weather Models Showing Strong Projected Heating Demand

With the updated weather data revealing an ongoing bullish pattern extending into September — particularly in Texas, where record-breaking temperatures show no signs of abating —  cooling loads should experience a consistent upward spike.

The escalation in summer heat translates into the burning of more gas to feed higher electricity consumption for air conditioning. According to the EIA's latest Short Term Energy Outlook, natural gas’ share of electricity generation would rise to 40% this year from 37% in 2019. Therefore, as Americans crank up their air conditioning to combat hotter-than-normal weather, companies in the natural gas industry stand to make more money.

This should also significantly reduce the current inventory surplus that remains bloated due to a combination of weak consumption from a warmer-than-expected winter 2019-2020, coronavirus-induced drop off in usage and a dip in volumes flowing to LNG export plants. As of Aug 7, natural gas stockpiles held in underground storage in the lower 48 states stands at 3.332 trillion cubic feet (Tcf) — 608 Bcf (22.3%) above 2019 levels at this time and 443 Bcf (15.3%) higher than the five-year average.

With weather models suggesting a continuation of this warming trend over the next few weeks, the storage surplus is expected to shrink and push prices even higher. This bodes well for companies that develop and sell natural gas. 

Additional Tailwinds

The novel coronavirus outbreak remains a big catalyst for balancing the natural gas market. Analysts believe that the brake in skyrocketing shale oil production growth — tied to the crude price collapse — will also limit associated gas output, thereby cutting the massive supply glut. As a proof of the impending supply drop, the EIA expects that the United States will churn out 88.7 billion cubic feet a day (Bcf/d) of dry natural gas this year, down from the 2019 average of 92.2 Bcf/d.

The U.S. natural gas rig count, an indicator of future production, also points to the same. According to Baker Hughes (BKR), the gas rig count continues to decline, recently falling to a record low of 68 from 165 a year ago.

Finally, the steady improvement in shipments of LNG for export will facilitate the natural gas market. Volumes flowing to LNG export plants recently dropped to multi-month lows due to weak international demand. However, there has been a sustained increase in feed gas volumes over the past few weeks on the back of a better demand outlook. This is likely to translate into rising LNG shipments in August — the first in six months and a bullish demand factor for U.S. natural gas prices.

Which are the Best Natural Gas Companies Going Forward?

Scorching hot weather forecasts across the lower 48 over the next few weeks are likely to spur natural gas’ demand for cooling, and therefore prices, at least for the near term. The upward trend should aid gas-weighted producers. We present five companies that investors should watch out for.

SilverBow Resources, Inc. (SBOW - Free Report) : A pure-play upstream operator in the Eagle Ford Shale in South Texas, SilverBow Resources is a natural gas-focused E&P company. Over 30 days, the Zacks Rank #1 (Strong Buy) company has seen the Zacks Consensus Estimate for 2020 increase 21%. SilverBow controls 165,000 net acres in the Eagle Ford and 79% of its total output comprises natural gas.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Range Resources Corporation (RRC - Free Report) : The company, carrying a Zacks Rank #3 (Hold), has a strong footing in the prolific Appalachian Basin. In the gas-rich resource, the upstream firm has huge inventories of low-risk drilling sites that are likely to provide production for several decades. About 70% of the company’s total output is natural gas. Over 30 days, Range Resources has seen the Zacks Consensus Estimate for 2020 increase 112.5%.

Gulfport Energy Corporation (GPOR - Free Report) : The company's asset base — primarily focused on natural gas — is concentrated in the Utica Shale of Ohio and the SCOOP play in Oklahoma. Gulfport has a combined inventory in excess of 3,000 gross drilling locations in its two primary plays. Of Gulfport’s total output, nearly 90% comprises natural gas. Over 30 days, the #3 Ranked company has seen the Zacks Consensus Estimate for 2020 increase 104.5%.

Cabot Oil & Gas Corporation (COG - Free Report) : Cabot is an independent gas exploration company with producing properties mainly in the continental United States. The company — with Zacks Rank of 3 — owns 174,000 net acres in the dry gas window of the Marcellus play. Cabot beat the Zacks Consensus Estimate in three of the last four quarters and reported in-line in the other, delivering an earnings surprise of 20.79%, on average. All of Cabot’s production is natural gas.

CNX Resources Corporation (CNX - Free Report) : CNX Resources is a leading operator in the Appalachian basin — the most prolific domestic gas basin — with more than 1.1 million net acres. About 96% of the company’s total output is natural gas. The 2020 Zacks Consensus Estimate for this Zacks Rank #3 company indicates 88.5% earnings per share growth over 2019.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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