Watch Natural Gas Pricing

At any given time we are watching bunches of different markets which we seldom write about because they simply don’t have current effects on various income securities that we watch day to day.

Recently we have been watching natural gas prices.  Obviously most readers are aware that the United States has become the globes largest producer of natural gas because of horizontal drilling in the various shale plays.  Because of the huge increase in natural gas the U.S. has become, for the 1st time in 60 years, a net exporter of natural gas.

Just in the last 2 years natural gas exports of LNG (liquified natural gas) has risen by over 400% to the point where the amount of natural gas that the U.S. has in storage has begun to get smaller and smaller.  It is this buffer in storage that allows the U.S. to supply domestic needs during very cold–or very hot weather as the amount of power generated by natural gas power plants  increases (from coal).

Here you can see a chart from the Energy Information Agency which shows that current natural gas inventories are running around 25% to 30% below the 5 year average and now have moved to the lowest level, for this time, in 5 years.  Now is when U.S. natural gas should be injecting (stored) in preparation for winter needs, but we have a new player–LNG and global markets which stand ready to purchase most any amount the U.S. wants to sell.

Now it is not our intent to write a big long article on natural gas–but it is our intent to highlight a potential pitfall or maybe opportunity in the various MLPs available to income investors.  We are talking about the pipeline companies, natural gas producers and the LNG shippers (like Dynagas LNG Partners, Teekay LNG Partners or GasLog Partners) which may stand to either benefit from or get hurt by quickly changing markets.

The point of this article is simply to give a ‘heads up’ for holders or potential holders of securities in the natural gas arena.

11 thoughts on “Watch Natural Gas Pricing”

  1. Funny you wrote that Tim. I am not a big energy or pipeline guy, but your above thoughts were my genesis for purchasing a big (relative speaking) purchase of preferred CNIGP. Corning was just recently the first public utility to directly tap their line into Marcellus region…Per president statement below.
    As an innovative company, we were the first gas utility to connect directly into the Marcellus Shale fields, first to build a compressor station to feed shale gas into the interstate pipeline system, first in 40 years to create a new Pennsylvania gas utility (geographically on top of some of the best gas fields in the country), a first mover in connecting our pipeline network directly to gas storage, a national leader in building new gas franchises, a leader in systematic replacement and upgrades of older pipes, and of course, a company that distinguishes itself as providing “old style,” local customer service. Given our DNA and history, expect us to continue to focus on running a good utility, and simultaneously creating more firsts in utility innovation.

    They have a joint ownership in a company called Leatherstocking Gas Company that is expanding their tiny footprint in the area. I got the training wheels on with this play as its mostly a regulated utility with a term dated feature if the conversion value never materializes (but with a 1.2 conversion it is already in the black for me). They also use its pipes to pipe gas through their lines for other companies in addition to their own service customers.
    That is my extent in this area, and I suspect it will stay this way. I just find this little utility that is basically owned by the CEO, a couple other management people, and Gabelli as a fascinating little project….Very illiquid though.

    1. Grid,
      Do you live in the Southern Tier?
      My wife is from the area (Bingo) and we visit from time to time.

  2. Yes Grid–I have a couple hundred of that–I have had a buy order in to get more (at my price of course). I have to admit that I don’t follow them at all–I let you do that for me.

    Small companies like these that have a direct connect to any gas play are damned lucky–that is one of the problem with nat gas–everyone is ‘not in my backyard’ when it comes to pipeline capacity-in particular in the northeast.

    1. Tim, I just sense there is another chapter to this story that hasnt played out. It seems like the CEO is by design putting pieces together of a long term plan. First it was just a tiny regulated gas company….Then a couple years ago they form a joint ownership to form an unregulated gas line. Still “trapped” in New York they then buy a little electrical/gas utility (Pike County) from Consolidated Edison, at such a cheap price they booked an instant 1.2 million profit from the purchase. This then gets them inside state boundaries of Pennsylvania, which what a shock, is where Marcellus is. This allows them regulated opportunites with cross state permits in both PA and NY now… Now they plan to move these lines to underserved areas that can tap off their lines. The problem is it is such a massively small scale entity it isnt even funny. I think the Pike County purchase serves about 5,800. The price that Corning paid for this was so small, I bet you have a reader (but definitely not me) who have networth enough to have bought the thing themselves ($16 million for the entire utility).

    2. Tim, Do you know if NS-A reported any Unrelated Business Income on their k-1s for 2017?

  3. Thanks for the commentary. Interesting EIA graph. Gridbird is great.
    With respect to LNG shipping companies I would suggest that there is a delicate balance in shipping rates between increased global demand for natural gas, in ton-miles vs. new ships being launched. Mr. Putin is not going to let the US sell much gas to Europe (Gazprom). The major export market for the US is Asia, e.g. China, Japan, and South Korea. A long haul. Presently most of the LNG China imports do NOT come from the USA. Caution- without Asia, increased export growth from US will be limited.

  4. I have scars from losses in the energy sector, (Gdp-C, Lnco, Memp, Gst-B, Sdrl, Mcep). I watched the boom and got in the Fall, 2014, buying companies that “seemingly” had good financials and good write-ups. But managerial malfeasance and OPEC flooding the market drove many into BK. Those two factors are not amenable to financial analysis, and I can’t find my crystal ball.

    1. I got hit by LNCO when they were buying another company (Berry I think) and they were investigated. This was a case of a sure thing until the SEC stepped in.
      I regard that as one of the many hard investment lessons I have learned over the years. There is never a sure thing:(

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