We did it!
Nymex natural gas futures hit $5/mmBTU in Thursday's trading, the first time that mark was broached since early 2014. Natgas futures haven't sustainably held the $5 mark since before the 2008-2009 financial crisis. As recently as June, the now front-month contract, which settles in October, was trading below $3/mmBTU. It has been a hell of a run.
Natgas futures will move on all manner of weather-related forecasts (many of which prove to be untrue), but what we are seeing here is an exogenous shift in the way this hydrocarbon is priced. Natgas is the perfect transition fuel as we move to a greener planet, and folks around the world have figured that out. But, outside of Russia, the rest of the world doesn't produce much natgas, and much of that is so-called "associated gas" that is a by-product of oil production.
In any financial market there is scope for arbitrage. If your gas bill annoys you next month, just think of what the folks in Europe and Asia are dealing with The U.S. benchmark is gas priced at the Henry Hub in Louisiana. Europe and Asia use baskets that capture different localities, but the generally accepted benchmarks as the TTF index for Europe and the JKM basket for Japan.
So, if you think $5 natgas is elevated, CME futures trading shows JKM at $18.65 for October settlement and $21.40 for November and TTF for November delivery at a mere $19.16/mmBTU. Those are some bad mamma jammas.
So, wise men like Charif Souki and Wes Edens have attacked this problem in different ways. I have mentioned Cheniere (LNG) , Tellurian (TELL) , and New Fortress (NFE) in prior Real Money columns. Cheniere has been a solid performer, Tellurian hasn't done much and New Fortress has been an absolute, unadulterated dog this year. Does anyone even look at fundamentals anymore?
Sure, they do.
But at the end of the day, it's not the transporters (I still am heavily exposed to LNG shippers like Flex LNG (FLNG) in my portfolio), but the good old, bog-standard gas producers that will benefit the most from higher gas prices. Their costs don't change or more than any other companies in this inflation riddled economy, but their revenues rise due to higher net pricing.
So, it's back to the old horsemen of the hydraulic fracturing boom. EQT Corp. (EQT) , Range Resources (RRC) , Cabot (COG) , Antero Resources (AR) , Southewestern (SWN) and of course the integrated majors all produce natural gas as well, especially Exxon (XOM) . I checked RRC stock and Range had celebrated today's pricing milestone by rising a penny. Antero has been a stellar performer (as it has its midstream cousin Antero Midstream (AM) , one of my favorites and one that I've mentioned in many Real Money columns), but the stocks of the other four horsemen have done absolutely nothing in 2021. Why?
Don't ask me. I just work here. Ha! This buffoon-driven market with its meme stocks and constant ESG obfuscation is missing a huge opportunity right under its nose. Not for the first time. Load up on natgas stocks. Wait for the dividend hikes, aggressive share repurchases and opportunistic merger and acquisition deals (with premia to match) that inevitably accompany any boom. I would rather have CH4 than Au in my portfolio now. Make sure you have some exposure, too.