Prepare for the Inevitable Bounce in Natural Gas Prices

Energy Investing

The Biden administration’s pause on approvals for new liquified natural gas (LNG) liquefaction projects has tanked the price of natural gas. The low prices will curtail production, eventually leading to higher prices.

This is the time to invest to profit from the price recovery – and here are my favorite ways to do it…

Blue flame of a gas stove

Natural Gas Futures (NG1) traded as high as $3.60 in late October and was around $3.30 with a runup during the first half of January.

On January 24, the Biden administration announced a “temporary pause on pending decisions on exports of Liquefied Natural Gas (LNG) to non-FTA countries until the Department of Energy can update the underlying analyses for authorizations.”

The announcement cratered the price of natural gas. Here is the year-to-date chart (courtesy of Magnifi) for the United States Natural Gas Fund (UNG), which holds natural gas futures contracts:

Most natural gas producers cannot profitably drill for gas at $1.50 metric million British thermal units (MMBtu). Gas production companies will dramatically slow the amount of drilling. Lower production will produce higher gas prices. Also, the export pause only affects LNG facilities that will come online several years in the future. They do not affect current demand, and the gas trading crowd will eventually figure that out and start to bid up the price of natural gas.

To profit from the natural gas price recovery, look at a couple of Marcellus pure-play gas producers and pair the upstream company stocks with their associated midstream stocks. The midstream companies pay nice dividends, giving you some income while you wait for the upstream producer stocks to pay off.

EQT Corp. (EQT), with a $15 billion market cap, is one of the top U.S. natural gas producers. For 2023, the company produced two trillion cubic feet of gas, an adjusted EBITDA of $3.0 billion, and $879 million of free cash flow.

Equitrans Midstream Corp. (ETRN) provides midstream gathering and transport services to the EQT production area. Equitrans Midstream yields 5.7%.

Antero Resources Corp. (AR) is a $7.3 billion market cap Marcellus and Utica-focused gas producer. For 2023, Antero produced 3.4 billion cubic feet per day. Antero is the most efficient producer of gas and natural gas liquids. The company expects to generate over $500 million of free cash flow in 2024.

Antero Midstream Corp. (AM) provides dedicated midstream services to Antero Resources. Antero Midstream currently yields 7.2%.

Natural gas has become one of the most important global energy sources. Demand growth will push up the price of natural gas. It could happen suddenly.

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