LNG shares to look for fire in Texas export facility

A Wednesday fire knocked one of the largest US liquefied natural gas export plants out of operation for at least three weeks, pushing the LNG markets already struggling with a supply crisis. The power outage forced a divergence in US and European LNG prices, with Europe’s energy markets already severely constrained due to the international response to the war in Ukraine.

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After reaching a 14-year high on Monday, natural gas futures prices fell 6.4% to 8.69 metric million British thermal units on Wednesday. US LNG prices also fell, as the incident at the privately owned Freeport LNG export terminal in Quintana, Texas, meant that a large proportion of upcoming US LNG exports were nowhere to be found.

LNG-related stocks generally traded lower on Thursday. Meanwhile, European gas prices rose. Rising benchmark futures in Amsterdam fell by six days, according to Bloomberg. Gas prices in the UK rose by 39 per cent.

Natural gas futures were recovered later Thursday, trading at around 8.5 metric million British thermal units, after the US Energy Information Administration (EIA) released storage data.

The EIA announced that last week’s natural gas storage was estimated at 1,999 bcf. This is a net increase of 97 bcf from last week, in line with expectations. However, US natural gas storage is down 16.6% compared to last year and 14.5% below the five-year average of 2339 bcf, according to federal estimates.

A loss of one million tonnes

Demand for LNG has risen sharply over the past year, just as a coincidence with new capacity lifts the US to compete with Australia and Qatar for the title of the world’s largest LNG exporter. On the demand side, even before Russia’s invasion of Ukraine, European electricity prices had skyrocketed late last year. With natural gas supplies from Russia now largely off the table in Europe, electricity prices are expected to go even higher. In 2021, Russia supplied almost half of the EU’s gas imports.

The Freeport LNG plant can produce around 2 billion cubic feet per day (bcf / d) of LNG. It provides more than 15% of US LNG export capacity. US LNG total peak export capacity in 2021 was approximately 12.98 bcf / d, according to EIA. The United States is the world’s best natural gas producer.

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Before Wednesday’s explosion and fire, export trackers reported that the terminal was producing around the top level. Tom Marzec-Manser, a gas analyst for ICIS, tweeted on Thursday that 68% of all Freeport LNG exports in the last three months have gone to the EU and the UK.

“If the plant is only offline for 3 weeks, there is almost 1 (million tonnes) of production away from the Atlantic,” he wrote.

So far in 2022, 75% of the total US LNG cargo has gone to Europe, compared to 34% in 2021, according to federal data.

LNG shares to see

LNG exporter Cheniere energy (LNG) reversed early losses and rose 0.6% before falling again. The LNG share was down 3.36% to 137.41 at Thursday’s closing time.

LNG carriers Golar LNG (GLNG) and Flex LNG (FLNG) were both down in today’s stock market trading. FLNG decreased by 8.41% while GLNG decreased by 4.85%. The loss of export capacity suggests that until Freeport LNG’s production is back online, there will be less LNG to move out of the US.

On May 4, Houston-based Cheniere Energy, an IBD Leaderboard stock, increased EBITDA and full-year cash flow guidance for 2022, after shattering first-quarter earnings. LNG partially cited increased volumes and higher LNG margins.

The relative strength of both GLNG shares and Cheniere Energy rose to several-year highs in March after the Ukraine war. Flex LNG reached record highs and Golar reached a multi-year high in early June.

Both shares have retreated sharply after the outbreak, falling more than 8% below the buy points and triggered automatic sales rule.

Oil and gas stocks have outperformed this year’s stock market. Industrial giants Exxon Mobile (XOM), Chevron (CVX) and Shell (SHEL) – all major players in the LNG field – can be found on IBD’s proprietary watch lists, including IBD 50 and IBD Big Cap 20. All three stocks fell early Thursday.

Follow Kit Norton on Twitter @KitNorton for more coverage.

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