U.S. natural gas inventories fell on Tuesday as gas prices fell alongside oil, testing their lowest levels since March. US stocks rose. And fears of a recession grew as the International Energy Agency (IEA) predicted weaker-than-expected demand for the rest of the year.
Natural gas futures pared losses after plunging 7% in early trade. National stocks recovered some lost ground after an explosion destroyed part of Freeport LNG’s export terminal in Quintana, Texas. This left behind liquefied natural gas that had been marked for export.
U.S. crude oil prices briefly fell 8% on Tuesday, dropping below $100 for the first time since May 11.
Gas prices in Europe rose about 1% before reversing on Tuesday. Benchmark futures in Amsterdam jumped to prices not seen since March as Europe braced for the shutdown of a key Russian pipeline. A strike among North Sea production staff added to supply pressure.
Strike in Norway puts pressure on Europe’s energy supply
Production at three offshore production areas was halted on Tuesday. Norwegian public energy company Equine (EQNR) announced on Tuesday that the fields were producing the equivalent of about 89,000 barrels of oil equivalent per day. Over 30% of production is natural gas.
The strike was to escalate in increments if demands, mainly for wage increases in line with recent inflation, were not met. According to estimates by the Norwegian Oil and Gas Association, nearly 60% of the company’s gas exports to the North Sea could be reduced if the strike continues.
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Europe has been scrambling to find alternatives to Russian gas, following Russia’s assault on Ukraine. As a result, demand for LNG has exploded. LNG stocks also soared earlier this year, but have traded largely flat since April.
On the demand side, even before Russia’s invasion of Ukraine, European electricity and natural gas prices had soared late last year. With supplies of Russian natural gas increasingly irrelevant in Europe, electricity prices are set to rise further. In 2021, Russia supplied nearly half of the European Union’s gas imports.
Outlook: LNG, natural gas stocks
The strikes in Norway come as the IEA now forecasts natural gas consumption to contract in 2022.
The EIA also predicts that without Russian gas, Europe’s LNG needs are expected to exceed supply capacity additions in 2022. Europe will account for more than 60% of net growth in global LNG trade until in 2025, according to IEA forecasts.
“Russia’s unprovoked war in Ukraine is seriously disrupting gas markets that were already showing signs of strain,” IEA Director of Energy Markets and Security Keisuke Sadamori said in a statement. . “We are now seeing inevitable price spikes as countries around the world compete for LNG shipments.”
The Freeport LNG Effect
On June 8, a fire knocked out Freeport LNG’s liquefied natural gas export plant, putting pressure on markets already struggling with a supply shortage.
The Freeport LNG plant can liquefy approximately 2 billion cubic feet of natural gas per day (bcf/d). This represents more than 15% of US LNG export capacity. The maximum total LNG export capacity in the United States in 2021 was approximately 12.98 billion cubic feet per day, according to the Energy Information Administration (EIA).
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With the Freeport LNG plant out of service, US gas reserves rose by 82 trillion cubic feet per day as of June 24, according to the EIA. Natural gas supply remains constrained – storage is still down 11% from a year ago and is 12% below the five-year average.
Last week, the company announced that partial operations would not return until October at the earliest. Freeport LNG had previously estimated that the export terminal would be partially operational by September. Full capacity is expected to return by the end of 2022.
LNG, natural gas stocks
On Tuesday, LNG and natural gas inventories in general followed natural gas prices lower. LNG exporter Energy Cheniere (LNG) fell 0.37% at the close of trading on Tuesday.
LNG carriers Golar LNG (GLNG) is up 0.09% and Flexible LNG (FLNG) fell by 1.8% respectively.
natural gas producer Devon Energy (DVN) fell 5.8%, while Range Resources (RRC) lost 4.9% and EQT (EQT) plunged 6%.
On May 4, Houston-based Cheniere Energy, an IBD-ranked stock, raised EBITDA and cash flow guidance for the full year 2022 after smashing first-quarter revenue forecasts. LNG cited in part increased volumes and higher LNG margins.
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The relative strength of GLNG and Cheniere Energy stocks hit multi-year highs in March following the war in Ukraine. Flex LNG hit a record high and Golar hit a multi-year high in early June.
Oil and natural gas stocks have consistently outperformed the stock market this year. Industry giants Exxon Mobil (XOM), Chevron (CLC) and Shell (SHEL) – all major players in the LNG space – are on IBD’s proprietary watchlists, including the IBD 50 and the IBD Big Cap 20.
XOM and SHEL have been selected by state-owned oil company QatarEnergy as partners in the North Field East expansion project. It is the largest LNG company in the history of the industry, according to company releases.
The two energy giants will own a 25% stake in a joint venture that owns a quarter of the stake in the North Field East expansion. The project is expected to increase Qatar’s annual LNG capacity from 77 million tonnes to 110 million tonnes by 2026.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
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