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Here's What Happened to the Natural Gas Market Last Week
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The U.S. Energy Department's weekly inventory release showed that natural gas supplies increased when it was expected to decline. The bearish inventory numbers notwithstanding, futures settled with a slight gain week over week — just the second in the last eight — on signs of production pullback.
Despite the marginal rise, the market hasn't been kind to natural gas, with the commodity recently hitting fresh three-and-a-half-year lows due to worries about record output and concerns about a growing glut. At this time, we advise investors to focus on stocks like Coterra Energy (CTRA - Free Report) and Cheniere Energy (LNG - Free Report) .
EIA Reports a Surprise Build
Stockpiles held in underground storage in the lower 48 states rose 7 billion cubic feet (Bcf) for the week ended Mar 15, as opposed to the guidance of a 1 Bcf withdrawal, per a survey conducted by S&P Global Commodity Insights. The increase compared with the five-year (2019-2023) average net shrinkage of 42 Bcf and last year’s decline of 68 Bcf for the reported week.
The first build of the year puts total natural gas stocks at 2,332 Bcf, which is 411 Bcf (21.4%) above the 2023 level and 678 Bcf (41%) higher than the five-year average.
The total supply of natural gas averaged 105.3 Bcf per day, down 0.4 Bcf per day on a weekly basis due to a slump in dry production and lower shipments from Canada.
Meanwhile, daily consumption rose to 107.7 Bcf from 106.6 Bcf in the previous week, mainly reflecting an uptick in residential/commercial usage and a higher power burn triggered by cold late-winter heating demand.
Natural Gas Prices Finish Essentially Flat
Natural gas prices barely budged last week following the unexpected inventory increase. Futures for April delivery ended Friday at $1.66 on the New York Mercantile Exchange, edging up some 0.2% from the previous week’s closing. Nevertheless, the fuel has declined about 34% this year, after tumbling 44% in 2023.
Investors should know that natural gas realization has been under pressure from strong production, an elevated level of stockpiles and tepid weather-related demand. It's worth mentioning that the current inventory levels are well above the year-ago figure and the five-year average. The bearish sentiment surrounding the commodity even prompted shale producers Chesapeake Energy (CHK - Free Report) and EQT Corporation (EQT - Free Report) to hit the brakes on new drilling.
Chesapeake announced a reduction in its drilling rigs so as to lower volume. The company has decided to cut this year’s gas production expectations by around 20%. Chesapeake’s plans rippled through the market, with Appalachian Basin-focused EQT following on. The explorer and producer of natural gas said that it will lower its daily output by 1 Bcf to combat the supply glut in the U.S. market. According to EQT, the revised plan took effect in late February and will continue at least through March. This will likely reduce net production by 30-40 Bcf, per the company. While these production cut announcements temporarily sent natural gas prices higher, they have failed to galvanize the market.
As is the norm with natural gas, changes in temperature and weather can lead to price swings. With low heating demand this winter and forecasts turning milder, usage of the commodity to generate electricity has taken a hit.
Having said that, there are signs of curtailment in U.S. production. According to energy services provider Baker Hughes, the U.S. natural gas rig count — a pointer to where production is headed — is down more than 30% from last year to its lowest since January 2022. Industry observers believe this could set the stage for a pullback in near-term drilling and supplies.
Meanwhile, a stable demand catalyst in the form of continued strong LNG feedgas deliveries is supporting natural gas. As a matter of fact, 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.
At the same time, the protracted downtime associated with the testing and repairs at the Freeport LNG export plant in Texas has drowned out some of the positives as of now. The Quintana, TX facility — responsible for around 15% of U.S. liquefaction capacity — is facing outages at two of its three liquefaction trains until May. 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
The upshot of all of these factors — the natural gas market — remains an oversupplied one. As mentioned above, it endured a torrid year in 2023, briefly breaking below the $2 threshold for the first time since 2020. The situation is not much different in 2024, with the fuel reaching a multi-year low near $1.511 in late February and struggling to hold above the psychological mark of $2.
Based on several factors, the space is currently quite unpredictable and spooked by 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 Coterra Energy and Cheniere Energy.
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 (Hold) company churned out an average of 2,262.7 million cubic feet on a daily basis from these assets in 2023.
Coterra beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters and missed in the other, the average being 9.3%. Valued at around $20.5 billion, CTRA has risen 17.1% 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 enjoys a distinct competitive advantage.
Cheniere Energy’s expected EPS growth rate for three to five years is currently 25.8%, which compares favorably with the industry's growth rate of 14.6%. This #3 Ranked natural gas exporter has a trailing four-quarter earnings surprise of roughly 64.7%, on average. LNG shares have moved up 7.6% in a year.
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Here's What Happened to the Natural Gas Market Last Week
The U.S. Energy Department's weekly inventory release showed that natural gas supplies increased when it was expected to decline. The bearish inventory numbers notwithstanding, futures settled with a slight gain week over week — just the second in the last eight — on signs of production pullback.
Despite the marginal rise, the market hasn't been kind to natural gas, with the commodity recently hitting fresh three-and-a-half-year lows due to worries about record output and concerns about a growing glut. At this time, we advise investors to focus on stocks like Coterra Energy (CTRA - Free Report) and Cheniere Energy (LNG - Free Report) .
EIA Reports a Surprise Build
Stockpiles held in underground storage in the lower 48 states rose 7 billion cubic feet (Bcf) for the week ended Mar 15, as opposed to the guidance of a 1 Bcf withdrawal, per a survey conducted by S&P Global Commodity Insights. The increase compared with the five-year (2019-2023) average net shrinkage of 42 Bcf and last year’s decline of 68 Bcf for the reported week.
The first build of the year puts total natural gas stocks at 2,332 Bcf, which is 411 Bcf (21.4%) above the 2023 level and 678 Bcf (41%) higher than the five-year average.
The total supply of natural gas averaged 105.3 Bcf per day, down 0.4 Bcf per day on a weekly basis due to a slump in dry production and lower shipments from Canada.
Meanwhile, daily consumption rose to 107.7 Bcf from 106.6 Bcf in the previous week, mainly reflecting an uptick in residential/commercial usage and a higher power burn triggered by cold late-winter heating demand.
Natural Gas Prices Finish Essentially Flat
Natural gas prices barely budged last week following the unexpected inventory increase. Futures for April delivery ended Friday at $1.66 on the New York Mercantile Exchange, edging up some 0.2% from the previous week’s closing. Nevertheless, the fuel has declined about 34% this year, after tumbling 44% in 2023.
Investors should know that natural gas realization has been under pressure from strong production, an elevated level of stockpiles and tepid weather-related demand. It's worth mentioning that the current inventory levels are well above the year-ago figure and the five-year average. The bearish sentiment surrounding the commodity even prompted shale producers Chesapeake Energy (CHK - Free Report) and EQT Corporation (EQT - Free Report) to hit the brakes on new drilling.
Chesapeake announced a reduction in its drilling rigs so as to lower volume. The company has decided to cut this year’s gas production expectations by around 20%. Chesapeake’s plans rippled through the market, with Appalachian Basin-focused EQT following on. The explorer and producer of natural gas said that it will lower its daily output by 1 Bcf to combat the supply glut in the U.S. market. According to EQT, the revised plan took effect in late February and will continue at least through March. This will likely reduce net production by 30-40 Bcf, per the company. While these production cut announcements temporarily sent natural gas prices higher, they have failed to galvanize the market.
As is the norm with natural gas, changes in temperature and weather can lead to price swings. With low heating demand this winter and forecasts turning milder, usage of the commodity to generate electricity has taken a hit.
Having said that, there are signs of curtailment in U.S. production. According to energy services provider Baker Hughes, the U.S. natural gas rig count — a pointer to where production is headed — is down more than 30% from last year to its lowest since January 2022. Industry observers believe this could set the stage for a pullback in near-term drilling and supplies.
Meanwhile, a stable demand catalyst in the form of continued strong LNG feedgas deliveries is supporting natural gas. As a matter of fact, 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.
At the same time, the protracted downtime associated with the testing and repairs at the Freeport LNG export plant in Texas has drowned out some of the positives as of now. The Quintana, TX facility — responsible for around 15% of U.S. liquefaction capacity — is facing outages at two of its three liquefaction trains until May. 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
The upshot of all of these factors — the natural gas market — remains an oversupplied one. As mentioned above, it endured a torrid year in 2023, briefly breaking below the $2 threshold for the first time since 2020. The situation is not much different in 2024, with the fuel reaching a multi-year low near $1.511 in late February and struggling to hold above the psychological mark of $2.
Based on several factors, the space is currently quite unpredictable and spooked by 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 Coterra Energy and Cheniere Energy.
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 (Hold) company churned out an average of 2,262.7 million cubic feet on a daily basis from these assets in 2023.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Coterra beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters and missed in the other, the average being 9.3%. Valued at around $20.5 billion, CTRA has risen 17.1% 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 enjoys a distinct competitive advantage.
Cheniere Energy’s expected EPS growth rate for three to five years is currently 25.8%, which compares favorably with the industry's growth rate of 14.6%. This #3 Ranked natural gas exporter has a trailing four-quarter earnings surprise of roughly 64.7%, on average. LNG shares have moved up 7.6% in a year.