Below-zero temperatures ushered in by a parade of fierce winter storms across the U.S. are partly to blame for the highest natural gas prices in five years. That has many people counting down the days to spring. Higher temperatures in the months ahead should offer some relief from winter and costly gas bills.
Weather-related increases in demand are contributing to the short-term hike in natural gas prices and critical levels of inventory.
However, even if Mother Nature spares the Northeast and Midwest from extreme winters in the future, we still lack the pipelines in the U.S. to deliver enough natural gas to consumers—and gas-fired power plants—that need it most.
It makes surging production a moot point as long as bottlenecks prevent it from being delivered. Much of the gas is pumped more than 1,000 miles from the Gulf Coast to the Northeast.
In New England, power plants’ use of natural gas has jumped from 30% of electricity produced to 52% since 2001, with not a single new pipeline built. The region has seen electricity prices soar. Steven Gold, assistant secretary for energy for Massachusetts, said, “That’s not unusual for this time of year, but the price spikes are getting sharper and more frequent. They’ve probably grown about tenfold.”
Across the U.S., as many as 10 pipeline projects are in the works to deliver an extra 2 billion cubic feet of gas from the Marcellus Shale into the Northeast and mid-Atlantic, according to Bloomberg New Energy Finance. Half that capacity won’t be completed until late 2018.
Action needs to take place—and fast—if we are to avoid a “crisis coming down the pike.”
Further, natural gas is slowly taking the place of coal as a cleaner energy alternative. With many coal plants close to retirement in the Northeast, demand will continue to rise.
The spike in natural gas prices may not be as close to ending as many think.
These three natural gas stock companies are well-positioned to profit from the Polar Vortex and pipeline shortage:
National Fuel Gas
This diversified energy company conducts business in the eye of many storms, providing natural gas to 735,000 customers in Western New York (Buffalo) and in Erie, Pa. Although the utility portion of the company does particularly well when gas prices are high, exploration and pipe production is the real bread-and-butter for this small-cap company.
National Fuel (NFG) owns an integrated gas pipeline system extending from southwestern Pennsylvania to the New York-Canadian border, and east to Ellisburg and Leidy, Pa. It also operates 27 underground natural gas storage fields, four underground natural gas storage fields and the Empire Pipeline, a 249-mile integrated pipeline system.
Like most companies in this arena, it performed much better in fourth quarter of 2013. Production for the year was up 44.8%, coming mostly from the Seneca Appalachia properties.
NFG’s earnings for the first quarter of fiscal 2014 of $82.3 million increased $14.4 million, compared to $67.9 million year-over-year. The increase is due to higher earnings across all segments.
NFG increased its earnings guidance for fiscal 2014 to a range of $3.10 to $3.40 per share (the previous earnings guidance had been a range of $3.05 to $3.30).
Cabot Oil & Gas
This $16.5 billion independent oil and gas company’s primary development, exploration and production grounds are in the Marcellus Shale in Pennsylvania with approximately 200,000 net acres under lease and expanding. A well in this region costs Cabot Oil & Gas (COG) $6 million to drill and complete and generates a 115% internal rate of return. Not too shabby.
It also has partnered with EOG Resources (EOG), in Eagle Ford Shale in south Texas with approximately 60,000 net acres and 43 producing wells.
Since 2010, production has grown at an annual rate of 45%, and reserves compounded 23% annually from 2009 to 2012. In third-quarter 2013, Cabot’s production surged 61% year over year, while net income nearly doubled.
The company reports earnings on Feb. 20 after the market close.
This Forth Worth, Texas-based company operates mainly in the Permian Basin area of Texas and recently announced that it will acquire 5,645 acres in northern Midland Basin near its existing operations in Midland, Upton, Martin and Andrews counties.
As a result of the new acquisition Athlon Energy (ATHL) expects average daily production to exceed expectations given at its IPO in August 2013.
Besides strong output, the $2.6 billion company has also been able to reduce costs by cutting down on lease operating expenses significantly – to $7.19 per barrel of oil equivalent in the third quarter of 2013, from $10.21 a year ago. Meanwhile, revenues have surged 65% to 180% in each of the past four quarters.
Written by Karen Riccio