Remember the bad old days of two years ago? That’s when Russia invaded Ukraine, and the price of natural gas in Europe soared a few hundred percent.
The spike in gas prices was due to the fact that the Russian gas giant Gazprom provided about 35% of all Europe’s natural gas before the war. Flows through four main pipelines from Russia accounted for around 40% of the European Union’s total supplies.
Move forward to Europe today, and things have changed… but they've also stayed the same. There is still just one company that is supplying 30% of Europe’s natural gas, but it's not Russian.
The natural gas now comes from Norway. Of the more than 109 billion cubic meters of natural gas that Norway exported to Europe last year, roughly two-thirds was marketed and sold by this one company.
That company is Norway’s energy powerhouse, Equinor ASA (EQNR). It was previously known, years ago, as Statoil, and the Norwegian government still controls it with a 67% stake.
Natural Gas Profits Are Rolling In
Make no mistake - Norway and Equinor are making a lot of money from the transition away from Russia to costlier natural gas from Norway. Norway sold $130 billion worth of natural gas to Europe in 2022.
Equinor’s place in the center of Europe’s energy picture is easy to spot. Last summer, when Equinor announced that maintenance at some of its biggest gas facilities was being extended, the price of natural gas spiked almost 20% within a few minutes.
The good news for Europe is that natural gas supplies from Norway will likely reach a record this year as the country and Equinor work to reduce its maintenance schedule across its facilities.
Equinor has been working hard to increase the capacity of its facilities, including reducing bottlenecks at its Kollsnes gas processing plant, which increased capacity from 144 million cubic meters a day to 156 million cubic meters.
The company is also building up its liquefied natural gas (LNG) portfolio, having signed two deals several months ago to buy LNG from Cheniere Energy (LNG) and to sell it to India’s Deepak Fertilizers in a 15-year agreement. It has already contracted around 3.5 million metric tons from Cheniere with shipments beginning in 2026.
Equinor believes demand growth will come from countries looking to replace coal with natural gas (NGM24). One such country is India, which the company expects will become a large player in the global LNG market.
The company believes LNG will be an integral part of the energy transition, and will be required for decades to come, especially in Asia. This is the top-energy importing and consuming region and the likely driver of global energy demand until 2050.
In addition, recent discoveries by Equinor on the Norwegian continental shelf (NCS) in the Barents Sea indicate that lots of energy resources remain, allowing the company to use its existing infrastructure to add incremental production at high returns. These discoveries reversed years of declining volume from the NCS.
In both Norway and internationally, Equinor is developing 21 projects that breakeven below $35 per barrel, and have payback periods of less than 1.5 years, assuming a $75 per barrel oil price. And it has more than 30 other projects with similar low costs and high returns.
EQNR Stock Is a Buy
As long as Europe continues to depend heavily on fossil fuels, Norway and Equinor will be essential to keeping the lights on in Europe.
That means big profits for Equinor, as displayed in its better-than-expected first quarter results. The company posted a higher-than-expected first quarter profit thanks to higher oil and gas production in its native Norway, strong operational performance, and robust results from LNG trading.
This is particularly good news for investors in Equinor that are looking for income. The company did cut its dividend in 2020 by 67%, and suspended its share buyback program because of the collapse in the oil price at that time. Its current plan is to grow the dividend in line with earnings, while considering cash flow and capital spending requirements.
It will also return cash through repurchases and extraordinary dividends, which give it flexibility. Although investors may have been stung by the cut in 2020, the dividend has since been increased above prior levels.
During the last quarter, Equinor paid its ordinary dividend of $0.35, a special dividend of $0.35, and bought back $1.6 billion worth of shares. Given its strong financial performance, Equinor will move forward with the next part of its $6 billion stock repurchase plan for 2024, and a similar amount in 2025. All in all, the company expects total capital distributions in 2024 of $14 billion.
EQNR stock is a buy on any day that Wall Street decides to sell energy stocks, at a price below $29.
