What happened
Shares of midstream oil company Kinder Morgan (KMI +1.80%) rallied 2.5% early Wednesday and continued to maintain momentum through the day as natural gas prices rebounded dramatically. With a freight-rail strike looming large even as utilities prepare to build gas inventories ahead of winters, fears of a gas supply crunch are back to renew investor interest in top natural gas stocks.
So what
After retreating from their 14-year highs hit in mid-August, natural gas prices shot up this morning and were rallying as much as 8% as of this writing. The U.S. and Europe are heading into peak demand season as winters approach at a time when Europe is already facing an energy crisis.
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To make matters worse, two of the largest rail unions comprising nearly 60,000 freight rail workers in the U.S. have threatened to go on strike as early as Friday if their demands for working conditions and pay aren't met.
While the White House is reportedly looking for alternatives to rail to keep the economy moving in the event of a rail shutdown, it's easier said than done. The American Trucking Association, for example, has told Congress in a letter that it won't be able to deploy 460,000 additional long-haul trucks every day to replace the nearly 7,000 long-distance freight trains if idled.
Rail is crucial for the American economy: Freight rail hauls almost one-third of America's exports and accounts for nearly 40% of the nation's long-distance freight volume. The Association of American Railroads estimates the economic cost of a nationwide rail shutdown to be a staggering $2 billion per day.
Now what
A rail shutdown will throw supply chains out of gear and hurt key sectors like energy as refiners and petrochemical companies could be forced to suspend operations, even if partially. That could hit gasoline and diesel supply in an already tight market and drive prices higher.
NYSE: KMI
Key Data Points
It's a real threat to the natural gas markets right now, which is why natural gas prices zoomed on Wednesday, triggering buying activity in natural gas stocks.
Kinder Morgan operates the nation's largest natural gas transmission network -- spanning nearly 71,000 miles -- which moves almost 40% of the total U.S. natural gas production. Although Kinder Morgan's cash flows are largely contracted, take-or-pay, or fee-based and therefore less susceptible to natural gas prices, its growth depends a great deal on higher commodity prices as they hold the key to the volume of capital spending and investing activity in the industry. Kinder Morgan already raised its full-year outlook in July when it also boosted its dividend by 3%. It's a top dividend oil stock yielding 5.9%.
Image source: Getty Images.
