What happened
Natural gas stocks were unstoppable until last week, when they started showing signs of peaking. Today, though, was one of the toughest for investors as leading natural gas stocks plunged by double digits. Here's how much top stocks had fallen at their lowest points in trading Tuesday:
- Antero Resources (AR +0.51%): Down 13.6%
- EQT (EQT +0.01%): Down 11.3%
- Southwestern Energy (SWN +0.00%): Down 12.8%
Natural gas prices unexpectedly plunged, and took these stocks along for the ride.
So what
U.S. natural gas fell nearly 16% on Tuesday, testing $7 per million British thermal units (MMBtu) for the first time in nearly nine weeks. An unexpected event is to blame.
Last week, Freeport LNG's liquified natural gas (LNG) terminal in Texas suffered an explosion.
Industry experts believed the terminal would be up and running within weeks, but Freeport LNG dropped a surprise this morning when it said the plant might not be fully operational until late 2022, and it could take three months to even resume part operations.
It's a significant development as the Texas terminal is one of the largest LNG export terminals in the U.S. and therefore a large consumer of natural gas. The long outage now means the terminal won't need natural gas for immediate use, and all of that supply amounting to nearly 2 billion cubic feet of gas per day can now be stored or rerouted for domestic consumption.
That's a lot of gas, and should help ease a supply crunch that sent natural gas prices soaring to highs not seen in more than a decade. Not surprisingly, natural gas prices -- and natural gas stocks -- tanked after Freeport LNG's latest update.
Now what
Investors bet big on natural gas stocks as gas prices continued to rise, with share prices of Antero Resources, EQT, and Southwestern Energy even doubling this year through the end of May. The blast at the Texas terminal has dashed their hopes, and investors are now dumping these stocks after their fiery run-up.
It's worth noting here, though, that lower natural gas prices might not necessarily be bad for all companies. The way gas prices were rising, companies like EQT that hedge and lock in selling prices would have ended with humongous losses thanks to mark-to-market losses on hedging instruments. A dip in natural gas prices, therefore, should help them trim those losses.
NYSE: EQT
Key Data Points
In any case, it's hard to predict how hard natural gas prices could fall. Harsh weather in July and August, for example, could send demand for natural gas soaring, which could help tighten the supply-and-demand balance again and even lift natural gas prices higher.
On the flip side, the U.S. National Oceanic and Atmospheric Administration recently projected greater hurricane activity during the Atlantic hurricane season between June and November. That's a threat to major LNG terminals, and any outage could put further pressure on natural gas prices.
Then there's the geopolitical concern stemming from the war between Russia and Ukraine.
In short, energy prices are hard to predict, and investors in natural gas stocks might want to brace for more volatility ahead.
