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Is Natural Gas Poised for a Turnaround After 2023 Slump?
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Natural gas fuel endured a torrid year in 2023, as prices tumbled more than 40%, briefly breaking below the $2 threshold for the first time since 2020, as buyers fled the market over growing worries about record output, mild weather and concerns of an ongoing supply glut.
The natural gas market is expected to navigate a terrain fraught with risks and opportunities in 2024, too. Geopolitical tensions, economic factors, weather uncertainties, and production and storage levels all cast shadows on the horizon. At this time, we advise investors to focus on stocks like Range Resources (RRC - Free Report) , Coterra Energy (CTRA - Free Report) and Cheniere Energy (LNG - Free Report) .
2023 Market Recap
The natural gas story in 2023 initially saw an optimistic trajectory, fueled by concerns over supply shortages and scorching heatwaves in the United States. However, this narrative swiftly pivoted as robust production, abundant supply, and mild winter weather triggered a collapse in prices. By the end of the year, the commodity was down 43.8% — the most significant decline since 2006 — closing out at $2.514 on the New York Mercantile Exchange.
Overall, the natural gas market witnessed a tumultuous 2023, marked by an overarching downturn in performance. This primarily resulted from a surge in domestic production, which hit a staggering 105 billion cubic feet per day (Bcf/d) in November 2023.
The high production levels, coupled with a milder winter, translated to reduced consumption and a subsequent surge in storage inventories. For context, the U.S. benchmark, Henry Hub spot price, averaged a modest $2.80 per million British thermal units (MMBtu) during the winter heating season.
Pointing to an oversupplied market scenario, the U.S. Energy Department's latest weekly inventory release showed that stockpiles held in underground storage in the lower 48 states are at 3,490 billion cubic feet (Bcf), which is 348 Bcf (11.1%) above the year-ago level and 316 Bcf (10%) higher than the five-year average.
Factors Affecting Natural Gas Outlook for 2024
Economic Landscape: The global economic landscape emerges as a pivotal player in shaping energy demand, including natural gas, as 2024 begins. While a gradual recovery is on the horizon, lingering worries about global inflation, particularly in Europe, loom large. These concerns could cast a shadow on industrial and commercial energy demand, potentially impacting natural gas consumption.
North American gas markets may grapple with early 2024 weakness, driven by factors such as heightened storage inventories, potential warmer-than-usual temperatures and subdued demand from industrial and commercial sectors.
Geopolitical Factors: Geopolitical intricacies played a defining role in shaping the natural gas landscape in 2023. The loss of the Nord Stream pipeline reverberated through European gas supplies, underscoring the market's sensitivity to geopolitical shifts. Despite challenges, adept management of gas storage and strategic U.S. liquefied natural gas (‘LNG’) exports, especially to Europe and Asia, demonstrated resilience. As geopolitical tensions persist, international conflicts could continue to reverberate across natural gas supply dynamics.
Weather and Its Impact: As is the norm with natural gas, changes in temperature and weather forecasts can lead to price swings. In 2023, a mild winter tempered demand for the fuel during the traditionally high-consumption heating season. This year too, the specter of unpredictable weather patterns, including the potential for milder winters, poses an ongoing challenge with implications for natural gas price stability.
LNG Silver Lining: A stable demand catalyst in the form of continued strong LNG feedgas deliveries should support natural gas in 2024. LNG shipments for export from the United States have been elevated for months, reaching record levels due to environmental reasons and Europe’s endeavor to move away from its dependence on Russian natural gas supplies due to the war in Ukraine.
Drop in Rig Count: There are signs of curtailment in domestic volumes. According to energy services provider Baker Hughes, the U.S. natural gas rig count — a pointer to where production is headed — was down some 23% in 2023. Industry observers believe this could set the stage for a pullback in near-term drilling and supplies.
Final Thoughts
Based on several factors, the space is currently quite unpredictable and spooked by the sudden changes in weather and production patterns. As such, investors are clueless about what to do. As of now, the lingering uncertainty over the fuel means that they should preferably hold on to fundamentally strong stocks like Range Resources, Coterra Energy and Cheniere Energy.
Range Resources: It is a leading operator in the prolific Appalachian Basin — a premier natural gas play — with huge inventories of low-risk drilling sites that are likely to provide production for several decades. About 68% of this Zacks #3 Rank (Hold) company’s total output is natural gas.
Range Resources beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, with the average being 33.6%. Valued at around $7.4 billion, RRC has gained 30.6% in a year.
Coterra Energy: It is an independent upstream operator primarily engaged in the exploration, development and production of natural gas. Headquartered in Houston, TX, the firm owns some 183,000 net acres in the gas-producing Marcellus Shale of the Appalachian Basin. This Zacks Rank #3 company churned out an average of 2,204 million cubic feet on a daily basis from these assets in 2022.
Coterra beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 11.8%. Valued at around $19.2 billion, CTRA has gained 10% in a year.
Cheniere Energy: Being the first company to receive regulatory approval to export LNG from its 2.6 billion cubic feet per day Sabine Pass terminal, Cheniere Energy certainly enjoys a distinct competitive advantage.
Cheniere Energy has a projected earnings growth rate of 602.3% for the current year. The Zacks Consensus Estimate for this #3 Ranked natural gas exporter’s 2023 earnings has been revised 17.3% upward over the past 60 days. LNG shares have gone up 21.5% in a year.
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Is Natural Gas Poised for a Turnaround After 2023 Slump?
Natural gas fuel endured a torrid year in 2023, as prices tumbled more than 40%, briefly breaking below the $2 threshold for the first time since 2020, as buyers fled the market over growing worries about record output, mild weather and concerns of an ongoing supply glut.
The natural gas market is expected to navigate a terrain fraught with risks and opportunities in 2024, too. Geopolitical tensions, economic factors, weather uncertainties, and production and storage levels all cast shadows on the horizon. At this time, we advise investors to focus on stocks like Range Resources (RRC - Free Report) , Coterra Energy (CTRA - Free Report) and Cheniere Energy (LNG - Free Report) .
2023 Market Recap
The natural gas story in 2023 initially saw an optimistic trajectory, fueled by concerns over supply shortages and scorching heatwaves in the United States. However, this narrative swiftly pivoted as robust production, abundant supply, and mild winter weather triggered a collapse in prices. By the end of the year, the commodity was down 43.8% — the most significant decline since 2006 — closing out at $2.514 on the New York Mercantile Exchange.
Overall, the natural gas market witnessed a tumultuous 2023, marked by an overarching downturn in performance. This primarily resulted from a surge in domestic production, which hit a staggering 105 billion cubic feet per day (Bcf/d) in November 2023.
The high production levels, coupled with a milder winter, translated to reduced consumption and a subsequent surge in storage inventories. For context, the U.S. benchmark, Henry Hub spot price, averaged a modest $2.80 per million British thermal units (MMBtu) during the winter heating season.
Pointing to an oversupplied market scenario, the U.S. Energy Department's latest weekly inventory release showed that stockpiles held in underground storage in the lower 48 states are at 3,490 billion cubic feet (Bcf), which is 348 Bcf (11.1%) above the year-ago level and 316 Bcf (10%) higher than the five-year average.
Factors Affecting Natural Gas Outlook for 2024
Economic Landscape: The global economic landscape emerges as a pivotal player in shaping energy demand, including natural gas, as 2024 begins. While a gradual recovery is on the horizon, lingering worries about global inflation, particularly in Europe, loom large. These concerns could cast a shadow on industrial and commercial energy demand, potentially impacting natural gas consumption.
North American gas markets may grapple with early 2024 weakness, driven by factors such as heightened storage inventories, potential warmer-than-usual temperatures and subdued demand from industrial and commercial sectors.
Geopolitical Factors: Geopolitical intricacies played a defining role in shaping the natural gas landscape in 2023. The loss of the Nord Stream pipeline reverberated through European gas supplies, underscoring the market's sensitivity to geopolitical shifts. Despite challenges, adept management of gas storage and strategic U.S. liquefied natural gas (‘LNG’) exports, especially to Europe and Asia, demonstrated resilience. As geopolitical tensions persist, international conflicts could continue to reverberate across natural gas supply dynamics.
Weather and Its Impact: As is the norm with natural gas, changes in temperature and weather forecasts can lead to price swings. In 2023, a mild winter tempered demand for the fuel during the traditionally high-consumption heating season. This year too, the specter of unpredictable weather patterns, including the potential for milder winters, poses an ongoing challenge with implications for natural gas price stability.
LNG Silver Lining: A stable demand catalyst in the form of continued strong LNG feedgas deliveries should support natural gas in 2024. LNG shipments for export from the United States have been elevated for months, reaching record levels due to environmental reasons and Europe’s endeavor to move away from its dependence on Russian natural gas supplies due to the war in Ukraine.
Drop in Rig Count: There are signs of curtailment in domestic volumes. According to energy services provider Baker Hughes, the U.S. natural gas rig count — a pointer to where production is headed — was down some 23% in 2023. Industry observers believe this could set the stage for a pullback in near-term drilling and supplies.
Final Thoughts
Based on several factors, the space is currently quite unpredictable and spooked by the sudden changes in weather and production patterns. As such, investors are clueless about what to do. As of now, the lingering uncertainty over the fuel means that they should preferably hold on to fundamentally strong stocks like Range Resources, Coterra Energy and Cheniere Energy.
Range Resources: It is a leading operator in the prolific Appalachian Basin — a premier natural gas play — with huge inventories of low-risk drilling sites that are likely to provide production for several decades. About 68% of this Zacks #3 Rank (Hold) company’s total output is natural gas.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Range Resources beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, with the average being 33.6%. Valued at around $7.4 billion, RRC has gained 30.6% in a year.
Coterra Energy: It is an independent upstream operator primarily engaged in the exploration, development and production of natural gas. Headquartered in Houston, TX, the firm owns some 183,000 net acres in the gas-producing Marcellus Shale of the Appalachian Basin. This Zacks Rank #3 company churned out an average of 2,204 million cubic feet on a daily basis from these assets in 2022.
Coterra beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 11.8%. Valued at around $19.2 billion, CTRA has gained 10% in a year.
Cheniere Energy: Being the first company to receive regulatory approval to export LNG from its 2.6 billion cubic feet per day Sabine Pass terminal, Cheniere Energy certainly enjoys a distinct competitive advantage.
Cheniere Energy has a projected earnings growth rate of 602.3% for the current year. The Zacks Consensus Estimate for this #3 Ranked natural gas exporter’s 2023 earnings has been revised 17.3% upward over the past 60 days. LNG shares have gone up 21.5% in a year.