What happened
It shouldn't be all that surprising that energy stocks got a lift this past month as soaring inflation and rising gas prices are causing investors to take a renewed interest in the industry.
Shares of Energy Transfer (ET 0.12%) jumped 10.4% in March, according to data from S&P Global Market Intelligence, after the operator of natural gas pipelines agreed to sell its interest in its Canadian operations while European interest in buying more U.S. natural gas helped lift the sector.
Image source: Getty Images.
So what
Energy Transfer's Canadian business was one of the biggest operators in Alberta, but it was acquired in 2019 when the pipeline company bought SemGroup primarily for its Houston oil terminal. The sale lets Energy Transfer pay down debt and improve its financial position.
Of more immediate benefit might be Europe's interest in breaking the stranglehold Russia holds over the continent's energy supply after its invasion of Ukraine. Although Europe has committed to lower the use of fossil fuels, continuing to finance Russia's aggression is seen as untenable.
While natural gas producers will be the primary recipients of new supply contracts that are signed, companies like Energy Transfer that process and transport gas supplies should do well.
Energy Transfer operates one of the largest intrastate pipeline systems in the country with more than 114,000 miles of pipelines across 41 states. It supports some of the biggest, most prolific energy regions, such as the Anadarko Basin, Barnett Shale, Haynesville Shale, Eagle Ford Shale, and Permian Basin.
It's estimated that European demand for U.S. gas should double over the next few years as exports grow to 50 billion cubic meters (bcm) annually through 2030, if not beyond. At least 15 bcm in additional supply has been pledged to Europe by the Biden administration for 2022.
Now what
The U.S. Energy Information Administration says the U.S. produced record amounts of natural gas in 2021 (the seventh consecutive year it notched a record), most of which was for domestic consumption. It predicts production will increase 25% annually through 2030 before leveling off. Most of the new production will occur in the Permian Basin, if for no other reason than its proximity to refineries along the Gulf of Mexico.
Energy Transfer's stock has been on a long downward trend over the past few years, as the energy sector itself has underperformed the broad market indexes. But energy stocks in general are ascendant in this period of soaring inflation and rising oil and gas prices. And with the need to transport these energy supplies in high demand, Energy Transfer seems to be a pipeline operator well positioned to continue rising as it did in March.
