Natural gas prices have been falling because of relatively warm weather in Europe and the U.S. But the commodity’s price is quite volatile and shouldn’t be the sole reason for investing in companies that produce natural gas.
For longer-term investors, the supply-demand fundamentals for the commodity seem to offer a reason to consider these seven natural gas companies.
A key driver for natural gas demand is the energy transition. New wind and solar generation are now cheaper than new natural gas plants in some places, but those renewable resources will take time to build, meaning there will continue to be a market for natural gas.
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Natural gas has been replacing coal for electricity generation in the U.S. and elsewhere. Although it’s nowhere near as clean as renewable energy, it does reduce emissions when compared with burning coal for power. That’s why it’s seen as a bridge fuel between coal and renewable energy for powering the grid.
Here are seven of the best stocks to tap into the continuing demand for natural gas:
— Cheniere Energy Inc. (ticker: LNG)
— Williams Cos. Inc. (WMB)
— EQT Corp. (EQT)
— Plains All American Pipeline LP (PAA)
— Enbridge Inc. (ENB)
— Kinder Morgan Inc. (KMI)
— Targa Resources Corp. (TRGP)
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Cheniere Energy Inc. (LNG)
The war in Ukraine exposed Europe’s dependence on Russian natural gas. As Europe weens itself from that source, it has been importing more natural gas from the U.S.
To transport natural gas to global markets from the U.S., the gas needs to be cooled into a liquid. The U.S. used to import liquefied natural gas, but the shale gas boom and investment in facilities that liquefy the gas have made the nation into the world’s biggest exporter of the commodity.
Amid the boom, Cheniere Energy — which operates liquefied natural gas terminals and liquefaction projects — is the biggest U.S. exporter. The company has one of the biggest liquefaction platforms in the world, with facilities in Louisiana and Texas, and it says it is also pursuing liquefaction expansion opportunities.
“The world is searching for secure supply sources of natural gas, and the U.S. is a likely source of future natural gas supply, which will benefit Cheniere well into the future,” says Rob Thummel, senior portfolio manager at Tortoise.
Williams Cos. Inc. (WMB)
Within the U.S., natural gas is often transported by pipeline, and Williams operates one of the largest pipeline networks in the nation.
Thummel points to the company’s high dividend yield of 5.6% and the company’s Jan. 31 announcement of a 5.3% increase in its quarterly payout to shareholders.
“The current regulatory environment makes it difficult to expand the U.S. pipeline infrastructure network, including natural gas pipelines operated by Williams, increasing the value of the existing pipeline network,” Thummel says.
“In the future, Williams will benefit from higher transportation volumes as natural gas gains market share in the U.S. and internationally, as part of an all-of-the-above approach to reducing emissions,” he adds.
EQT Corp. (EQT)
With operations in the Marcellus and Utica shales of the Appalachian Basin, EQT is the largest U.S. natural gas producer.
“U.S. shale has saved the world from sky-high natural gas prices, as U.S. shale represents almost 80% of U.S. production,” Thummel says.
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Like many U.S. energy companies, EQT has been focusing on share buybacks. In the third quarter, the company repurchased $380 million of common stock and doubled its 2022-2023 share repurchase authorization to $2 billion.
EQT has also been working to reduce its debt, recently raising its target for debt reduction by the end of this year to $4 billion from $2.5 billion.
“EQT’s CEO, Toby Rice, is a crusader for the natural gas industry, highlighting the numerous benefits of natural gas including significant reductions in carbon dioxide emissions when natural gas replaces coal,” Thummel says.
Plains All American Pipeline LP (PAA)
This energy infrastructure company owns pipelines, transportation, terminaling, storage and gathering assets for crude oil, natural gas liquids and natural gas.
It has operations in the Permian Basin, a fossil fuel-producing area in Texas and New Mexico that is expected to expand.
The company is structured as a master limited partnership, or MLP, and makes quarterly distributions of available cash to unit holders.
“It is PAA’s goal to increase its distribution to unit holders over time through a combination of organic and acquisition-oriented growth,” the company’s website states.
In the third quarter, its distribution per common unit rose 21% year over year. It also said it plans to continue unit repurchases as part of its long-term capital allocation plan.
Enbridge Inc. (ENB)
This company transports about 20% of the natural gas consumed in the U.S.
It also operates North America’s third-largest natural gas utility in terms of customers, giving it some cushion against fluctuations in natural gas prices.
In addition to natural gas, the company also invests in renewable energy projects, such as wind and solar. It has committed about $6 billion to renewable energy and power transmission projects that are in operation or under construction.
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Straddling the fossil fuel market and the green energy market seems like a solid strategy for Enbridge as the energy transition gains steam.
Kinder Morgan Inc. (KMI)
This pipeline operator’s natural gas pipelines segment operates major interstate and intrastate natural gas pipeline and storage systems; natural gas gathering systems and processing and treating facilities; natural gas liquids fractionation facilities and transportation systems; and liquefied natural gas regasification, liquefaction and storage facilities.
In short, Kinder Morgan stands to benefit from growth in demand for more liquefied natural gas from the U.S.
“Global LNG demand will continue to rise, while additions to global LNG export capacity will be limited in 2023,” Thummel says.
“LNG demand from China will grow in 2023 — likely by double digits — after declining in 2022,” he says. “This will create global competition for LNG, as European demand for LNG is likely to remain high as Europe replaces Russian natural gas and refills natural gas inventories in preparation for the 2023-2024 winter.”
Targa Resources Corp. (TRGP)
Targa is another infrastructure company that provides midstream services. It gathers natural gas and crude oil at the areas where they are produced and sells those commodities to market customers. The company also says it has a leading position at a natural gas liquids hub in Texas.
In January, Targa announced it had completed an acquisition of Blackstone Energy Partners’ 25% interest in Targa’s Grand Prix natural gas liquids pipeline for $1.05 billion, giving Targa 100% ownership of the pipeline.
Natural gas companies like Targa are facing high natural gas inventories in the U.S. amid high production and warmer-than-normal weather, but there are some bright spots for demand. A major liquefied natural gas export plant in Texas that has been idled is expected to return to full operations in April, which “will be a welcomed increase in natural gas demand,” Thummel says.
Still, there is a chance that natural gas inventories could reach record levels by October.
“With coal prices remaining high, there is potential for natural gas to be used rather than coal to generate electricity throughout the summer,” Thummel says, alleviating some of the excess natural gas inventory.
In 2024, he expects U.S. natural gas prices to rise as additional U.S. LNG facilities come online, boosting U.S. natural gas demand.
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7 Best Natural Gas Stocks to Buy in 2023 originally appeared on usnews.com
