Can These 2 Natural Gas Stocks Heat up Your Portfolio This Winter?

During the winter months, energy prices typically experience favorable conditions due to increased heating demand in colder weather, which widens the gap between supply and demand. The use of natural gas tends to reach its peak at the beginning of the winter season as households and office buildings turn to heaters.

The Energy Information Administration (EIA) raised U.S. natural gas consumption estimates by 230 MMcf/d to 93.28 Bcf/d for the fourth quarter of 2023 and by 240 MMcf/d to 104.22 Bcf/d for the first quarter of 2024.

Colder U.S. Conditions Drive Energy Prices Higher

Natural gas prices yesterday added to Tuesday’s gains and reported a 4-week high. Gas prices surged Wednesday on forecasts for colder U.S. temperatures, which would drive heating demand for natural gas. Forecaster Maxar Technologies said that a storm next week will bring wintry conditions to the nation’s eastern half and snow in the Midwest from June 8 to June 12.

On the other hand, the U.S. Climate Prediction Center stated that there is a greater than 55% chance the present EI Nino weather pattern will remain strong in the Northern Hemisphere through March, keeping temperatures above average and weighing on gas prices. As per AccuWeather, El Nino will limit snowfall across Canada this season in addition to causing above-normal temperatures across North America.

Last Thursday’s weekly EIA report was bullish for natural gas prices as natural gas inventories for the week ended December 22 declined by 87 Bcf to 3,577 Bcf, a larger draw than expected 79 Bcf decline; however, less than the 5-year average draw of – 123 Bcf.

As of December 22, natural gas inventories were up 12.1% year-over-year and 10% above their 5-year seasonal average, signaling adequate gas supplies.

Record U.S. Oil and Gas Production and Exports

Winter weather can be a significant tailwind for natural gas prices, with colder temperatures more supportive of heating demand, particularly from residential and commercial segments. But with high gas inventories, a price rally may not persist this winter.

U.S. oil and gas production has grown at a much faster pace, offsetting most of the OPEC+ efforts to push up energy prices by coordinated supply cuts.

Earlier, various OPEC+ oil producers announced voluntary production cuts totaling 2.2 million barrels per day (bpd) for the first quarter of 2024. Leading the cuts is OPEC's kingpin and the world’s biggest crude exporter, Saudi Arabia, which extended a voluntary oil output cut of 1 million bpd, priorly intended by the end of December 2023.

The U.S. is currently producing more than 13 million bpd of crude oil and is headed to a continued increase in the short and medium term. According to data from the EIA, U.S. output hit a new monthly record of 13.252 million bpd in September 2023 and kept the pace at 13.248 million bpd in October. As a result, the country’s crude oil exports also surged.

Meanwhile, U.S. LNG exports are breaking records. The U.S. exported more LNG during the first half of 2023 than any other nation, the EIA reported earlier this year. The average LNG exports during this period were 11.6 billion cubic feet per day (Bcf/d), up 4% from the first half of 2022. Also, October 2023 witnessed record LNG shipments, as per EIA data.

2 Natural Gas Stocks Which Could Benefit from Strong Winter Demand

With a $40.35 billion market cap, Cheniere Energy, Inc. (LNG) is an energy infrastructure company that mainly engages in liquified natural gas (LNG) related businesses in the U.S. The company owns and operates the Sabine Pass LNG terminal in Cameron Parish, Louisiana and the Corpus Christi LNG terminal near Corpus Christi, Texas.

In addition, Cheniere Energy owns the Creole Trail pipeline, a 94-mile pipeline interconnecting the Sabine Pass LNG terminal with several interstate pipelines and operates the Corpus Christi pipeline, a 21.5-mile natural gas supply pipeline interconnecting the Corpus Christi LNG terminal with various interstate and intrastate natural gas pipelines.

On November 29, 2023, LNG and Cheniere Energy Partners, LP (CQP) announced that Sabine Pass Liquefaction Stage V, LLC entered a long-term Integrated Production Marketing (IPM) gas supply agreement with ARC Resources U.S. Corp., a subsidiary of ARC Resources Ltd. (ARX), a prominent natural gas producer in Canada.

Under the IPM, ARC Resources agreed to sell 140,000 MMBtu per day of natural gas to SPL Stage 5 for 15 years, commencing with commercial operations of the first train of the Sabine Pass Liquefaction Expansion Project. This deal will allow Cheniere to deliver high quantities of Canadian natural gas to Europe.

“We are pleased to build upon our existing long-term relationship with ARC Resources, and further demonstrate Cheniere’s ability to construct innovative solutions that help meet the needs of customers and counterparties along the LNG value chain while delivering value to our stakeholders,” said Jack Fusco, Cheniere’s President and CEO.

On November 2, LNG’s subsidiary, Cheniere Marketing, LLC, entered a long-term liquified natural gas sale and purchase agreement (SPA) with Foran Energy Group Co. Ltd, a leading natural gas company based in China.

Under the SPA, Foran will purchase nearly 0.9 mtpa of LNG for 20 years from Cheniere Marketing on a free-on-board basis for a purchase price indexed to the Henry Hub price, plus a fixed liquefaction fee. Deliveries will commence upon the start of commercial operations of the second train of the SPL Expansion Project in Louisiana.

Also, on October 30, Cheniere’s Board of Directors declared a quarterly cash dividend of $0.435 ($1.74 annualized) per common share, up nearly 10% from the previous quarter, paid on November 17, 2023, to shareholders of record as of the close of business on November 9, 2023. The dividend increase reflects the company’s commitment to return enhanced value to its shareholders.

LNG’s trailing-12-month gross profit margin of 86.74% is 83.3% higher than the 47.32% industry average. Likewise, its trailing-12-month EBITDA margin and net income margin of 85.84% and 50.83% are considerably higher than the industry averages of 34.76% and 13.93%, respectively.

Furthermore, the stock’s trailing-12-month ROTC and ROTA of 41.15% and 29.82% favorably compared to the respective industry averages of 9.30% and 7.49%.

In the third quarter that ended September 30, 2023, LNG reported total revenues of $4.16 billion, while its LNG revenues came in at $3.97 billion. Its income from operations was $2.76 billion, compared to a loss from operations of $3.02 billion in the previous year’s quarter.

Also, the company’s net income attributable to common stockholders came in at $1.70 billion, or $7.03 per share, compared to a net loss attributable to common stockholders of $2.39 billion, or $9.54 per share in the prior year’s period, respectively.

During the quarter, the company generated a distributable cash flow of approximately 1.2 billion. As of September 30, 2023, Cheniere’s cash and cash equivalents stood at $3.86 billion, compared to $1.35 billion as of December 31, 2022.

For the full year 2023, the management expects consolidated adjusted EBITDA to be between $8.30 and $8.80 billion. The company’s distributable cash flow is projected to be in the range of $5.80-$6.30 billion.

CEO Jack Fusco commented, “Persistent volatility in commodity markets continues to reinforce the value of our commercial offering and the stability and visibility of our cash flows, and we are confident in achieving full year 2023 results at the high end of our guidance ranges.

“Looking ahead to 2024, construction on Corpus Christi Stage 3 continues to progress ahead of plan, and I am optimistic first LNG production from Train 1 will occur by the end of 2024,” Fusco added.

Analysts expect LNG’s EPS for the fiscal year (ended December 2023) to increase 519.5% year-over-year to $34.94. Further, the company’s EPS is expected to grow 23.3% per annum over the next five years. Moreover, Cheniere topped the consensus EPS estimates in all four trailing quarters, which is impressive.

Shares of LNG have surged more than 10% over the past six months and approximately 20% over the past year.

Another stock, Pioneer Natural Resources Company (PXD), could benefit from solid natural gas demand during the winter season. PXD operates as an independent oil and gas exploration and production company in the U.S. It explores for, develops, and produces oil, natural gas liquids (NGLs), and gas. The company has operations in the Midland Basin in West Texas.

During the third quarter of 2023, Pioneer’s continued operational excellence in the Midland Basin allowed the company to place 95 horizontal wells on production. More than 100 wells with lateral lengths of 15,000 feet or greater were placed for production during the first three quarters of last year.

In total, the company has more than 1,000 future locations with 15,000-foot lateral lengths in its drilling inventory.

On November 2, PXD’s Board of Directors declared a quarterly base-plus-variable cash dividend of $3.20 per common share, comprising a $1.25 base dividend and a $1.95 variable dividend. This represents a total annualized dividend yield of nearly 5.4%. The dividend was paid on December 22, 2023, to stockholders of record at the close of business on November 30, 2023.

PXD’s trailing-12-month gross profit margin of 52.23% is 10.4% higher than the 47.32% industry average. Moreover, its trailing-12-month EBITDA margin and net income margin of 48.07% and 26.22% compared to the industry averages of 34.76% and 13.93%, respectively.

Additionally, PXD’s trailing-12-month ROCE, ROTC, and ROTA of 22.32%, 14.57%, and 14.04% are higher than the respective industry averages of 19.99%, 9.30%, and 7.49%. The stock’s trailing-12-month levered FCF margin of 11.96% is 104.1% higher than the 5.86% industry average.

For the third quarter that ended September 30, 2023, PXD’s total production averaged 721 thousand barrels of oil equivalent per day (MBOEPD), near the top end of quarterly guidance. The company’s revenues and other income from the oil and gas segment came in at $3.46 billion. Cash flow from operating activities during the quarter was $2.10 billion, leading to a solid free cash flow of $1.20 billion.

However, the company’s net income attributable to common shareholders was $1.30 billion and $5.41 per share, down 34.4% and 31.8% from the prior year’s quarter, respectively.

As per the updated full-year 2023 guidance, Pioneer increased the midpoints of full-year 2023 oil and total production guidance with ranges of 370-373 MBOPD and 708-713 MBOEPD, respectively. But it decreased drilling, completions, facilities and water infrastructure capital guidance to $4.375-$4.475 billion.

Also, the company lowered full-year 2023 capital guidance for exploration, environmental and other capital to $150 million.

Street expects PXD’s revenue and EPS to decline 19.8% and 30.5% year-over-year to $19.50 billion and $21.25, respectively. But for the fiscal year 2024, the company’s revenue and EPS are expected to grow 14.8% and 8.8% from the prior year to $22.38 billion and $23.12, respectively.

PXD’s stock has gained nearly 12% over the past six months and more than 10% over the past year.

Bottom Line

Colder temperatures prompt households and office buildings to rely more heavily on natural gas as a heating fuel. As a result, natural gas prices witness a surge.

However, with natural gas inventors still above the five-year average, the prices may not witness a sustained rally this winter.

Despite relatively weaker prices, oil and natural gas production will continue to climb, creating ample growth opportunities for energy infrastructure companies. Amid this backdrop, investors could consider adding fundamentally sound energy stock LNG to their portfolio for potential gains.

However, given its mixed last reported financials and bleak near-term outlook, it could be wise to wait for a better entry point in PXD.

Costly Gas and Extensive Summer Traveling: 3 Stocks to Keep Tabs On!

2022 was an exceptionally good year for the energy sector, with most companies in the industry finishing the year off in the green, while the technology, communication services, and consumer cyclical sectors predominantly sported red. The energy sector was the S&P 500’s top performer last year, with a 58% spike.

Last year, an impressive run of energy stocks was supported by high oil and gas prices fueled by solid demand and tight supplies aggravated by Russia’s invasion of Ukraine.

Although energy prices have retreated from last year’s record highs, strong demand from extensive summer traveling, the reopening of the Chinese economy, and constrained supply amid recently announced production cuts by top exporters could significantly boost oil and gas prices.

Gasoline futures climbed past $2.8 per gallon, the highest in three weeks, driven by a bigger-than-expected inventory draw amid an improvement in domestic demand. Based on the new data from the Energy Information Administration, gas demand increased from 9.306 to 9.599 million b/d in the final week of last month.

In sync with gasoline prices, West Texas Intermediate (WTI) crude futures have been increasing toward two-month highs, boosted by output cuts by Saudi Arabia and Russia for August.

Energy stocks jumped sharply Friday afternoon while the S&P 500 struggled for direction, as U.S. oil prices witnessed their largest weekly gain since early April. The S&P 500’s energy sector grew 2.3% heading toward the closing bell Friday, while the broader stock market was mixed, according to FactSet data.

Moreover, WTI crude for August delivery increased 2.9% on Friday to settle at $73.86 a barrel on the New York Mercantile Exchange, the highest closing price since late May.

Several factors are putting upward pressure on gas and oil prices:

Increased Summer Travelling Boosts Demand for Gas

Gas and oil prices historically go up during the summer, starting around Memorial Day. More people traveling, especially on family vacations and road trips, boost demand for fuel. Approximately 85% of American adults intend to travel this summer, with nearly 42% of adults planning to travel more than last summer.

Also, approximately 39% of American adults, representing 100 million, intend to take a road trip more than 250 miles from their home.

Tight Fuel Supply in Spring Due to Refinery Maintenance

During the spring months, energy companies conduct maintenance on their refineries, shutting them down and limiting capacity until late May. US fuel production is likely to be affected by a heavy refinery maintenance schedule, and a stretched supply is expected to increase oil and gas prices considerably.

China Reopening Boosts Oil Demand

According to the latest International Energy Agency (IEA) Oil Market Report (OMR), global oil demand is expected to grow by 2.4 million barrels per day (mb/d) this year to a new record of 102.30 mb/d driven by substantial demand from China. The nation’s rebound remains persistent, with its oil demand reaching an all-time high of 16.3 mb/d in April.

Furthermore, Wood Mackenzie said in the report that China will make up roughly 40% of the world’s recovery in oil demand in 2023, driven by the reopening of its economy.

“A return to normal mobility in China is the single biggest demand driver, accounting for 1.0 million barrels per day (b/d) of the 2.6 million b/d increase this year,” a team of analysts led by Vice President Massimo Di Odoardo said in the report.

Recent Production Cuts

Supply cuts from top exporters, Saudi Arabia and Russia, would help to build a supportive environment for oil and gas prices this year. Saudi Arabia said last Monday that it would extend a cut in oil production of 1 mb/d that was announced in June through at least August to push up oil prices.
The Saudis were joined by Russia, whose deputy prime minister Alexander Novak said Moscow would cut output by 500,000 barrels in August. Together these cuts could amount to 1.5% of global supplies.

Last month, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, announced that it will stick to its 2023 oil production targets and will limit combined oil production to 40.463 mb/d over January-December 2024. Earlier, the alliance agreed to a 2 mb/d output cut in October 2022.

Also, in April this year, some OPEC+ members announced voluntary cuts to their oil production of approximately 1.16 mb/d in a surprise move.

3 Energy Stocks to Benefit from Strong Demand and Constrained Supplies

Cheniere Energy Partners, L.P. (CQP) is positioned to benefit from the demand and supply dynamics. Through its subsidiaries, the company offers liquefied natural gas (LNG) to integrated energy companies, utilities, and energy trading companies globally.

On February 23, CQP announced that certain of its subsidiaries initiated the pre-filing review process under the National Environmental Policy Act with the Federal Energy Regulatory Commission (FERC) for the proposed Sabine Pass Stage 5 Expansion Project (the SPL Expansion Project) adjacent to the existing Sabine Pass Liquefaction Project (the SPL Project).

The SPL Expansion Project, designed for a production capacity of 20 million tonnes per annum of liquefied natural gas, would utilize the existing infrastructure at the SPL Project and include improvements such as optimized ship loading at the marine facilities. This would enable the company to meet the growing demand for LNG, expand its market share, and generate higher revenue.

Also, in April, certain of the company’s subsidiaries signed a contract with Bechtel Energy Inc. to provide the Front End Engineering and Design (FEED) for the SPL Expansion Project.

For the first quarter that ended March 31, 2023, CQP reported total revenues of $2.92 billion, while its LNG revenues were $2.11 billion. Its income from operations rose 488.1% year-over-year to $2.13 billion. The company’s net income was $1.94 billion, up 1,117% from the prior year’s quarter.

In addition, CQP’s net income per common unit came in at $3.50, compared to a net loss per common unit of $0.11 in the previous-year period.

Analysts expect CQP’s EPS for the fiscal year (ending December 2023) to increase 35.1% year-over-year to $5.47. Furthermore, the company’s EPS is expected to grow 4.4% per annum over the next five years.

Another prominent energy stock, NuStar Energy L.P. (NS) , stands to profit from high fuel demand in the summer. NS engages in the transportation, terminalling, and storage of petroleum products and renewable fuels and the transportation of anhydrous ammonia in the United States and internationally. The company operates through Pipeline; Storage; and Fuels Marketing segments.

On May 4, NS and OCI Global (OCI) announced an agreement that would involve NS transporting ammonia on a new segment of NuStar Pipeline Operating Partnership L.P.’s Ammonia Pipeline System to OCI’s state-of-the-art ammonia products.

Under the deal, NS would install a new 14-mile pipeline segment connecting OCI’s Nitrogen facility in Wever, Iowa, with NS’ existing 2,000 miles anhydrous ammonia pipeline.

“We expect this healthy-return, low-capital project will meaningfully increase utilization of our Ammonia System,” said NS’ Chairman and CEO Brad Barron. “And we expect this project to be just the first of several, as we are actively working with a number of potential customers interested in connections to our system, across our footprint, for a variety of different opportunities.”

NS announced solid results for the first quarter of 2023, driven by strong volumes in its refined products and oil pipelines. The company’s Service revenues grew 7.5% year-over-year to $285.27 million. Its operating income was $159.99 million, an increase of 173.8% year-over-year. Also, its adjusted EBITDA rose 7.9% from the year-ago value to $187.03 million.

Furthermore, NS reported a net income of $106 million for the first quarter of 2023, or $0.61 per unit, compared to a net income of $12 million or a $0.22 net loss per unit for the first quarter of 2022. The company’s adjusted distributable cash flow (DCF) was $100.74 million, up 10.6% from the previous year’s period.

For the fiscal year 2023, NS’ EPS is estimated to increase 240.4% year-over-year to $1.23. In addition, analysts expect the company’s EPS and revenue for the fiscal year 2024 to grow 7.5% and 5% year-over-year to $1.32 and $1.65 billion, respectively
The third energy stock well-placed to capitalize on high demand during hot summer weather is MPLX LP (MPLX). The company owns and operates midstream energy infrastructure and logistics assets primarily in the United States. MPLX operates through two segments: Logistics and Storage and Gathering and Processing.

During the fiscal 2023 first quarter, MPLX reported total revenue and other income of $2.71 billion, up 4% year-over-year. Net income attributable to MPLX was $943 million, compared with $825 million for the same quarter of 2022. In addition, adjusted EBITDA attributable to MPLX was $1.52 billion, an increase of 9% from the prior year’s quarter.

Furthermore, during the quarter, the company generated $1.23 billion in net cash provided by operating activities, $1.27 billion of distributable cash flow, and adjusted free cash flow of £1.01 billion. MPLX returned $821 million to unitholders and announced a first-quarter 2023 distribution of $0.775 per unit, resulting in a distributable coverage ratio of 1.6x for the quarter.

Michael J. Hennigan, MPLX chairman, president, and CEO, said, “Our business continues to grow and generate strong cash flows. We are advancing our growth projects anchored in the Marcellus, Permian and Bakken basins.”

“These disciplined investments in high return projects, along with our focus on costs and portfolio optimization, are expected to grow our cash flows. This will allow us to reinvest in the business and return capital to unitholders,” he added.

Analysts expect MPLX’s revenue and EPS for the fourth quarter (ending December 2023) to increase 2.2% and 15.7% year-over-year to $2.72 billion and $0.90, respectively. The consensus revenue and EPS estimates of $10.98 billion and $3.64 for the fiscal year 2024 indicate a growth of 1.8% and 4% year-over-year, respectively.

4 Oil & Gas Stocks Every Investor Is Watching in the Summer of 2023

The redrawing of the global energy map and shifting geopolitical inclinations in the Middle East since the beginning of the conflict in Ukraine has been nothing short of a windfall for U.S. energy producers. The U.S. has “gone from (being) a very domestically focused market into an international powerhouse.”

The demand-supply imbalance is not as acute as a year back due to macroeconomic headwinds and the initial pent-up demand from China losing momentum amid its faltering economic recovery.

However, on June 4, while OPEC+, which pumps approximately 40% of the world’s crude, made no changes to its planned oil production cuts for this year, Saudi Arabia announced that it would implement an additional voluntary and (extendable) one-month 1 million-barrel-per-day cut starting this July.
With this decision, the kingdom has reined in its production to 9 million barrels from 10 million barrels, putting upward pressure on crude prices that have been delicately balanced between demand and supply.

Moreover, the Federal Reserve has adopted a hawkish pause to hold rates steady until the economy absorbs the cumulative effect of the earlier ten interest-rate hikes. This could help businesses and consumers breathe a sigh of relief and translate to increased economic activity during the summer and, consequently, demand for energy.

However, the resulting increase in energy demand amid constrained supplies could play into the hands of and lead to short-term gains for U.S. energy producers. In this context, let’s look at a few well-positioned stocks to convert rising energy prices to increased shareholder returns.
As an energy infrastructure company, Cheniere Energy, Inc. (LNG)is engaged in providing clean, secure liquefied natural gas (LNG) to integrated energy companies, utilities, and energy trading companies worldwide.

On May 16, LNG announced its entry into a long-term liquefied natural gas sale and purchase agreement with Korea Southern Power Co. Ltd (KOSPO). Pursuant to the agreement, KOSPO would purchase approximately 0.4 million tonnes per annum (mtpa) of LNG on a delivered ex-ship (DES) basis from 2027 through 2046, with a smaller annual quantity to be delivered starting in 2024.

On February 23, Cheniere Energy Partners, LP (CQP) announced that it initiated the permitting process for significant expansion of the LNG export facility at Sabine Pass, after which the total production capacity would increase to 20 mpta.

As a global energy services company, Weatherford International plc (WFRD) provides equipment and services used in the drilling, evaluation, well construction, completion, production, intervention, and responsible abandonment of wells in the oil and natural gas exploration and production industry as well as new energy platforms.

WFRD operates through three segments: Drilling and Evaluation (DRE), Well Construction and Completions (WCC), and Production and Intervention (PRI).
On June 8, WFRD announced that it was awarded a three-year contract with Aramco to deliver drilling services. Under the contract, WFRD will deploy its drilling services portfolio to add value to Aramco’s drilling operations by minimizing OPEX, reducing risks, and optimizing production.

Nustar Energy L.P. (NS) is primarily engaged in transporting petroleum products, renewable fuels, and anhydrous ammonia, terminalling and storing petroleum products and renewable fuels, and marketing of petroleum products. Accordingly, the company operates through three segments: pipeline; storage; and fuels marketing.

As a testament to its future readiness, on May 3, NS announced its agreement with OCI Global to transport ammonia, which the latter would use to make fertilizer and produce DEF (Diesel Exhaust Fluid), which reduces emissions from diesel engines in cars, as well as light and heavy-duty trucks, farming equipment and other heavy machinery.

Moreover, with ammonia emerging as a likely candidate to capture, store, and ship hydrogen for use in emission-free fuel cells and turbines, NS’ expertise in the transportation of ammonia is expected to be a significant growth driver in the future.

Beyond The Horizons

In its latest Oil 2023 medium-term market report, the International Energy Agency (IEA) has forecasted that, under current market and policy conditions, crude oil demand will rise by 6% from 2022 to reach 105.7 million barrels per day in 2028 on the back of the petrochemical and aviation sectors.
However, the agency also found that global oil demand growth will trickle nearly to a halt thereafter with the advancement of electric vehicles, energy efficiency, and other technologies.

However, until the modern economy and society can develop renewable energy technologies enough to rely on them exclusively, natural gas transported in bulk and consumed in liquified and compressed forms, respectively, will keep playing a crucial role as a bridge fuel to manage decarbonization goals and facilitate a seamless energy transition.