As compared to petroleum products and coal, natural gas is a relatively clean burning fossil fuel. This property has primarily been responsible for the growing use of natural gas in the generation of electricity and as transportation fuel. Of late, the price of the commodity has improved massively as compared to the pandemic hit low-mark last year, thereby brightening the outlook for gas-producing companies.
Surge in Natural Gas Price
The price of natural gas has skyrocketed more than 108% so far this year. While we are heading toward the winter heating season, concerns intensified over tight supplies of natural gas owing to which the price of natural gas recently touched a seven-year high mark.
Per estimates by the U.S. Energy Information Administration (EIA), working gas in underground storage in Lower 48 states was 3,006 billion cubic feet as of Sep 10, 2021. This represents a year-over-year decline of 16.5% and is also below the five-year average mark by 7.1%.
In the summer season, injections of gas in storage have been below average, said EIA. This was owing to a significant increase in export demand and hot weather conditions, especially when the production of the commodity was relatively flat. The EIA now expects that by October-end, which is the end of the 2021 injection season, inventories would be at almost 3.6 trillion cubic feet and thereby below the five-year average mark by 5%.
Explorers & Producers in the Spotlight
While supplies of natural gas will remain tight, demand for the clean burning fossil fuel will continue to increase. According to EIA estimates, combined residential and commercial consumption of natural gas will increase year over year by 1.2 billion cubic feet per day (Bcf/D) this year. EIA added that as compared to the prior year, industrial consumption of the commodity this year will improve by 0.6 Bcf/D.
The rise in consumption will be primarily owing to improving economic activities since coronavirus vaccines are rolling out at a massive scale. Included in the short-term energy outlook issued by the EIA, colder winter temperature this year as compared to last year will be driving consumption levels.
Thus, factors that will continue to fuel the surge in natural gas price will be bumping up consumptions amid supply constraints. A favorable pricing scenario is brightening up the prospects for explorers and producers of natural gas.
3 Stocks in the Spotlight
Since selecting the right companies with natural gas upstream operations from the entire stock universe is not an easy task, we are employing our proprietary
Stock Screener to zero down on three promising stocks with strong presence in prolific U.S. resources. All the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here . Range Resources Corporation ( RRC Quick Quote RRC - Free Report) is among the leading producers of natural gas and natural gas liquid (NGL) in the United States. In the Appalachia, the company has decades of low-risk drilling inventory, brightening up the production outlook. As compared to many other upstream players, the company has lower well costs per lateral foot. Range Resources expects 2021 to be the fourth consecutive year of absolute debt reduction. All those positives are getting reflected in the stock’s gain of 192.3% so far this year. Cabot Oil & Gas Corporation is an independent natural gas producer with operations in onshore resources in the United States. In 2020, the company delivered the fifth successive year of positive cashflow in spite of the fact that the average New York Mercantile Exchange (NYMEX) price was the lowest since 1995. As compared to the first half of 2020, the company’s free cash flow increased by $215 million in the first half of this year. The company entered into a stock-for-stock merger with Cimarex Energy Co. (XEC) that will create a premier energy company that will generate handsome capital returns across commodity price cycles. Comstock Resources, Inc. ( CRK Quick Quote CRK - Free Report) is a premier natural gas producer with footprint in the prolific Haynesville shale plays of North Louisiana and East Texas. The company’s production outlook seems bright since it has more than 1,900 net high-return and low-risk drilling locations. This will aid the company to generate industry-leading margins and is getting reflected in the stock price rally of 102.8% so far this year.