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Weekly Natural Gas Recap - When Do Natural Gas Producers Become A Buy?

Apr. 15, 2018 9:30 AM ETAR, CHK, CTRA, EQT, LNG, RRC, SWN39 Comments


  • Natural gas prices finished the week up 1.26%.
  • With production reaching new all-time highs, natural gas producer equities are still near multi-year lows.
  • When do natural gas producers become a buy?
  • The catalyst we are looking for to change the sentiment for the sector is the impending increase in LNG exports.
  • Shell notes that the LNG market will be in short supply by 2021 due to increase in demand, and we think this could provide a big tailwind for producers.

Welcome to the Weekly Natural Gas Recap Edition of Natural Gas Daily!

Natural gas prices finished the week up 1.26%.

With Mother Nature continuing to provide the tailwind for natural gas despite bearish fundamentals powered by higher production, natural gas prices marched higher this week followed by a sudden move up on Friday.

In our Friday NGF, we covered a few topics ranging from a short squeeze to algo-driven trades that explained the move, but what's been clear since the middle of February is that natural gas prices will largely be rangebound for the rest of this injection season. The lack of volatility has frustrated many of the traders we speak to, and energy investors that are looking at natural gas producers have all seemingly vanished as well.

With oil now receiving most of the attention, investors have reasons to ignore this highly value destructive sector for shareholders. For one, even as Lower 48 production marches to new highs and the composite of natural gas producers we follow showing ever higher natural gas production, these producers' stock prices continue to remain at multi-year lows. Even the fabled Cabot Oil & Gas (COG) has not rallied and received the same love affair as it did last year.

Just take a look at the returns over the last three years for the big 6: Southwestern (SWN), Range Resources (RRC), Antero (AR), Cabot, Chesapeake (CHK), and EQT (EQT).

But as the legendary Howard Marks said, "there's no such thing as a bad investment, just a bad price." This too applies to a battered industry like US shale gas producers.

For us with a contrarian bent at heart, the "value" presented in natural gas producers today does not represent that much of a value. Following the debacle that has gripped the entire energy sector, the

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