Natural Gas Market Overview

Oil and oil stocks have been stuck in a tight price range this year, fluctuating by a few percentage points in either direction week by week. Exxon Mobil is up 2% in 2024 and down 4% in the past year, making them quite uneventful.

Volatile Natural Gas Market

Natural gas, on the other hand, has been much more volatile. Prices hit rock bottom last week, dropping to the lowest levels since June 2020 due to warm weather reducing heating demands globally. The excess supply has pushed gas inventories in the U.S. to levels about 15% higher than the norm.

Chesapeake Energy Makes Headlines

However, things took a turn when Chesapeake Energy announced a cut in production expectations to address the oversupply issue. This move prompted a 13% surge in natural gas prices last Wednesday, signaling a potential shift in the market dynamics and earning praise for Chesapeake's leadership.

Caution Still Advised

Despite Chesapeake's positive industry influence, it's premature to consider it a buy signal for most stocks. The price of gas resumed its downward trajectory on Thursday, marking the tenth drop in the past 12 sessions. The market remains oversupplied, as competitors of Chesapeake are not yet aligning production levels.

Future Prospects for Natural Gas

Looking ahead, the long-term outlook for natural gas is optimistic, especially with the increasing demand for U.S. exports. Europe's shift from Russian natural gas and Asia's growing electricity generation reliance on gas present lucrative opportunities for American producers. New LNG export terminals opening on the Gulf Coast by year-end are expected to further boost exports.

By 2028, U.S. export capacity is set to double once again, creating lucrative markets seeking affordable gas for power generation and heating purposes. While there is potential for even more export growth, the Biden administration's pause on new project approvals reflects a commitment to evaluating environmental and economic impacts thoroughly.

Natural Gas Market Outlook

Natural-gas bulls have been eagerly anticipating the next export boom, hoping for a surge in prices. However, the oversupply issue may delay this potential price hike. Roth MKM analyst Leo Mariani expresses concern that Chesapeake's move to postpone production could shift supply growth from 2024 to 2025, resulting in persistent oversupply in the upcoming year.

Continued Bull Case for Natural Gas

Despite the challenges, there is still a bullish scenario for natural gas. As demand for the commodity continues to rise, especially with oil demand stabilizing in the late 2020s, investors need to identify companies that align with the industry's growth trends while steering clear of those that may struggle in a prolonged low-price environment.

Chesapeake, a top stock pick, remains well-positioned with a strategic advantage. The company's plan to acquire competitor Southwestern Energy will establish it as the leading producer in the Haynesville Shale, a key gas reservoir spanning Louisiana, Texas, and Arkansas with convenient access to export facilities. The merged entity aims to export up to 20% of its total production.

Promising Players in the Market

Cheniere Energy also stands out with its dominant position in operating LNG export terminals. In 2023, Cheniere accounted for more than half of all LNG shipments from the U.S., showcasing its strong market presence.

Although Cheniere recently issued a lackluster earnings outlook for 2024, resulting in a 4% drop in its stock price, the company's long-term growth trajectory remains intact. With two major expansion projects progressing as planned, Cheniere is poised for continued success. Moreover, some analysts speculate that Cheniere could benefit from Biden's temporary pause on LNG permits, as buyers might be willing to pay a premium for its products.

In a saturated natural gas market, entities with unique value propositions stand out.