LNG stocks traded generally higher Wednesday, a day after U.S. natural gas futures fell back from levels not seen since 2008. Prices rose on news of a key pipeline supplying gas from Russia to Europe. Prices fell back following a reported delay in the restart of Freeport LNG's Texas export terminal.
Freeport LNG said Tuesday it anticipates partial operations to resume at the Quintana, Texas, export terminal in early November, vs. earlier estimates for October. The facility aims to ramp up to a sustained level of at least 2 billion cubic feet per day (bcf/d) by the end of November. Full capacity is not expected to return until March 2023, the company reported.
The privately held company had previously estimated that its export terminal, one of the largest in the country, would be offline for only three weeks after a June 8 fire and explosion shut it down. On Aug. 4, Freeport LNG announced it agreed with regulators on steps to reopen the export terminal. The company estimated it would be operating by early October.
LNG total peak export capacity in 2021 was about 12.98 bcf/d, according to the U.S. Energy Information Administration. The Freeport LNG plant can produce around 2 billion bcf/d of LNG. That makes up more than 15% of U.S. LNG export capacity.
Nord Stream News Hits Natural Gas Prices
Natural gas price futures traded less than 1% higher early Wednesday, around $9.20 per million British thermal units.
On Tuesday, U.S. natural gas prices topped $10 per mmBTUs for the first time since prices spiked above $13 in June and July of 2008.
This week's price spike came after Gazprom announced it would shut down flows through the Nord Stream pipeline, which connects Russia's oilfields to Europe, for three days at the end of August. The Nord Stream supply had previously been reduced to 20% of its prior volume, adding pressure to European Union countries needing to stockpile fuel ahead of the winter.
In 2021, Russia provided nearly half the EU's gas imports. So far in 2022, 75% of total U.S. LNG cargoes have gone to Europe, compared with 34% in 2021, according to federal data. The U.S. is the world's top natural gas producer.
LNG Stocks And Natural Gas Producers
LNG stocks Cheniere Energy and New Fortress Energy along with natural gas producer Devon Energy all cut sharply higher during Tuesday's market trading.
Cheniere increased 0.4% while NFE gained 3.5% Wednesday. DVN increased 2.2%.
Houston-based Cheniere is the largest producer of liquefied natural gas in the U.S. and one of the largest LNG operators in the world. Its services range from gas procurement and transport to vessel chartering and delivery. Cheniere owns and operates liquefied natural gas terminals near Corpus Christi, Texas.
Cheniere's LNG sales increased 165% to $8 billion in the second quarter as the company earned $2.90 per share, up from a net loss of $1.30 per share in Q2 2021.
LNG Stocks Golar, Flex
LNG transport and processor Golar LNG increased marginally Tuesday, while competitor Flex LNG sank 4.6%.
Flex LNG missed on earnings estimates early Wednesday but announced it expects above-forecast results in the second half of 2022. FLNG shares rallied during Wednesday trading, surging nearly 6.2%.
"We are in the midst of a global gas crunch where buyers, especially in Europe, are scrambling to get their hands on LNG cargoes to ensure adequate energy supplies ahead of the winter," CEO Øystein Kalleklev said in a statement.
"New LNG export projects will create future freight demand, further underpinning the very sound long-term fundamentals of our industry," Kalleklev added.
GLNG shares added 4.7% Wednesday.
Even before the Freeport LNG update, LNG tankers were in high demand, with Europe's push to secure natural gas heightening competition for ships. Traders are reportedly responding to a demand surge with $24.1 billion worth of orders for new tankers so far this year, easily surpassing the 2021 full-year record of $15.6 billion, according to the Wall Street Journal.
Natural gas producers Range Resources, EQT and Coterra Energy all rebounded sharply early Wednesday, following a pullback on Tuesday.
LNG stocks have largely been consolidating since April, although demand for LNG has soared over the past year. Even before Russia's invasion of Ukraine, European electricity prices had skyrocketed. With natural gas supplies from Russia largely off the table in Europe, supply is severely constrained. However, U.S. export and transportation capacity is also at its limit, so any additional gas produced equals surplus supply.
Oil Market Tempers Energy Stocks
As U.S. natural gas prices moved toward record highs, U.S. crude oil futures slid on uncertainties around the revival of the 2015 Iran nuclear deal. An agreement would likely free Iran to resume oil exports, with an estimated capacity of about 2.5 million barrels per day.
But on Tuesday, oil stocks rallied as U.S. crude oil rebounded nearly 4% to $94 per barrel. Underscoring the oil market's uncertain outlook, Saudi Arabia signaled that the Organization of the Petroleum Exporting Countries and its allies could cut oil production in September.
The oil cartel, which including Russia is known as OPEC+, decided in early August to lift its planned incremental monthly production increases by 100,000 barrels per day for September. The quota increase is equal to 0.1% of global oil demand. OPEC+ is scheduled to meet again on Sept. 5.
But two weeks ago the group ran against the grain of most industry outlooks, cutting its demand outlook for the rest of this year and 2023 by more than 250,000 barrels a day.
After hitting $130 per barrel briefly in March after Russia invaded Ukraine, U.S. crude oil futures dropped below $86, before rebounding around $95 Wednesday.
The Rig Factor: Natgas Drilling Declines
As oil prices feel for a new trading range, rig activity in the U.S. posted its first three-week decline since July 2020, according to weekly data from Baker Hughes. While the number of rigs drilling for oil have held steady, rigs drilling for natural gas have dropped by one per week for the past two weeks.
That left the total U.S. rig count down by one to 762 for the week ending Aug. 19. Oil rig activity is still above last year's depressed levels, with a count of 503 active rigs in August last year.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
