It takes an optimist to invest in natural gas-levered stocks right now.
The commodity is trading at decade-low prices, raising questions about whether some companies will be able to survive long enough to benefit from a resurgence that could take years to materialize. The reality is though is that there are plenty of names that are well-positioned to stay alive through the wait.
There are wide-ranging forecasts for when the natural gas price catalysts will combine forces and drive domestic prices higher. But generally, analysts are leaning towards 2016 as the start of it. That’s when Cheniere Energy Partners (CQP) is expected to begin commercial operations of a first-of-its-kind, $10 billion U.S. liquefied natural gas (LNG) export plant in Sabine Pass, La.
Private equity group Blackstone has already agreed to invest $2 billion towards the construction of the project. The first two of four gas liquefaction facilities at the site — natural gas must be liquefied at extremely cold temperatures for ease of shipping overseas — will cost up to $5 billion to build. Cheniere is planning to begin construction around April, pending final regulatory approval from the federal energy regulator and closing of the Blackstone financing agreement.
By 2016, the other natural gas price catalysts — demand for the commodity to fuel power generators and natural gas vehicles, among others — should already be in motion. Around that time, there’s a chance that other export terminals will be unveiled in North America as well.
According to James Brick, a macro-energy analyst at research consultant Wood Mackenzie, the U.S. could start exporting on a net basis about 3.2 billion cubic feet a day of liquefied natural gas by 2030, as the nation reduces its dependence on foreign energy sources and assumes a more sophisticated global energy supplier role.
Once the catalysts align, excess domestic supplies should begin decreasing and boosting U.S. natural gas prices. Mike Breard, an analyst with Hodges Capital, reckons that the odds of gas doubling in five years are better than the odds of oil doubling in that time, and he believes the jump in gas could be sudden.
But until then, natural gas prices in the U.S. remain at an over 85% discount to oil on a British thermal units-equivalent basis, and oil is trading at more than 40 times the price of natural gas — the largest difference since the deregulation of the natural gas markets that began in the 1980s, according to Croft Value Fund data.