U.S. natural gas stocks tumbled on Tuesday, as gas prices fell alongside oil, tested their lowest levels since March. U.S. inventories rose. And fear of recession increased as the International Energy Agency (IEA) projected weaker-than-expected demand for the remainder of the year.
Natural gas futures settled down less than 4% on Tuesday after diving 7% in early trade. On Wednesday, natural gas dropped 2.5%. Domestic inventories recovered some lost ground after an explosion that knocked out part of Freeport LNG's export terminal in Quintana, Texas. That left stranded some liquefied natural gas that had been marked for export.
U.S. crude oil prices ended nearly 9% lower Tuesday, settling below $100 for the first time since May 11. The trend continued Wednesday with U.S. crude down 3.5%, hovering around $96.
European gas prices increased around 1% before reversing Tuesday. Benchmark futures in Amsterdam jumped to prices not seen since March as Europe braced for the shutdown of a key Russian pipeline. A strike among North Sea production personnel added to the supply pressure. On Wednesday, prices dropped sharply before making gains.
Norway Strike Adds Pressure To Energy Supply
Output at three offshore production areas shutdown on Tuesday. Norway's state-owned energy company Equinor announced Tuesday the fields produce the equivalent of about 89,000 barrels of oil equivalent a day. More than 30% of output is natural gas.
The strike was set to increase in increments if demands, primarily for pay increases track recent inflation, were not met. Nearly 60% of the company's North Sea gas exports could be reduced if the strike continues, according to Norwegian Oil and Gas Association estimates.
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The Norway government stepped in late Tuesday, requiring "compulsory wage arbitration" to resolve the industrial dispute. This action ended the strike.
Europe has scrambled to find alternatives to Russian gas, following Russia's assault on Ukraine. As a result, demand for LNG has soared. LNG stocks also soared early this year, but have largely traded flat since April.
On the demand side, even before Russia's invasion of Ukraine, European electricity and natural gas prices had skyrocketed late last year. With natural gas supplies from Russia increasingly off the table in Europe, electricity prices are expected to go even higher. In 2021, Russia provided nearly half the European Union's gas imports.
Outlook: LNG, Natural Gas Stocks
The Tuesday strike in Norway came as the IEA now forecasts natural gas consumption will contract in 2022.
The EIA also projects that without Russian gas, Europe's LNG needs are expected to outpace supply capacity additions in 2022. Europe will account for more than 60% of the net growth in global LNG trade through 2025, the IEA forecasts.
"Russia's unprovoked war in Ukraine is seriously disrupting gas markets that were already showing signs of tightness," IEA Director of Energy Markets and Security Keisuke Sadamori said in a statement. "We are now seeing inevitable price spikes as countries around the world compete for LNG shipments."
The Freeport LNG Effect
On June 8, a fire knocked the Freeport LNG liquefied natural-gas export plant offline, pressuring markets already battling a supply crunch.
The Freeport LNG plant can liquefy around 2 billion cubic feet of natural gas per day (bcf/d). That comprises more than 15% of U.S. LNG export capacity. U.S. LNG total peak export capacity in 2021 was about 12.98 bcf/d, according to the Energy Information Administration (EIA).
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With the Freeport LNG plant offline, U.S. gas reserves increased by 82 billion bcf/d as of June 24, according to the EIA. Natural gas supplies remain tight — storage is still down 11% from a year ago and is 12% below the five year average.
Last week, the company announced partial operations would not be back until October at the earliest. Freeport LNG previously estimated the export terminal would be partially operating by September. Full capacity was expected to return by late 2022.
LNG, Natural Gas Stocks
On Tuesday, LNG stocks ended mixed while natural gas prices closed sharply lower. LNG exporter Cheniere Energy shed early losses to end Tuesday with a fractional gain. On Wednesday, LNG was down 3% during market trading.
LNG transporter Golar LNG also reversed narrowly higher Tuesday before dropping 3.5% Wednesday morning. Flex LNG finished Tuesday down 1.8% and fell 3% Wednesday.
Meanwhile, natural gas stocks took some hard hits Tuesday. Devon Energy dropped 5.8%, while Range Resources shed 4.7% and EQT dived 6%.
DVN continued to fall Wednesday, down 3% in morning trading. RRC and EQT decreased 2% and 1%, respectfully.
On May 4, Houston-based Cheniere Energy, an IBD Leaderboard stock, raised full-year 2022 EBITDA and cash flow guidance, after crushing Q1 revenue views. LNG cited increased volumes and higher LNG margins in part.
Exxon, Shell Sign On To Massive LNG Project
The relative strength line for both GLNG stock and Cheniere Energy sprang to multiyear highs in March after the Ukraine war. Flex LNG aced a record high and Golar touched a multiyear high early in June.
Oil and natural gas stocks have consistently outperformed this year's stock market. Industry giants Exxon Mobil, Chevron and Shell — all significant players in the LNG field — can be found on IBD's proprietary watchlists, including the IBD 50 and the IBD Big Cap 20.
Both XOM and SHEL have been selected by state-owned petroleum QatarEnergy as partners in the North Field East expansion project. This is billed as the largest LNG undertaking in the industry's history, according to company releases.
Both energy giants will hold a 25% share in a joint venture company that owns a quarter stake in the North Field East expansion. The project is expected to increase Qatar's annual LNG capacity from 77 million tons to 110 million tons by 2026.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
