Natural gas companies watched their stocks tumble earlier this year with the price of nat gas, but some share prices have successfully reversed course.
Now natural gas prices, which have recently bounced around the $2.80 level after hitting a ten-year low in April, may be ready for another move up.
The fall in prices – from a high of $10.38 per million British thermal units (BTUs) in July 2008 to just $1.83 in April of this year – was primarily the result of a decade-long increase in U.S. gas production, which climbed by 21.6% from 2002 to 2011.
Now inventories are growing much slower and demand is increasing as electric utilities switch to natural gas from the more expensive coal. Other potential catalysts such as the weather, e.g. Hurricanes Debby and Isaac, could also send prices higher.
Natural gas prices rose more than 6% in the past week to $2.85 per million BTUs.
A rise in prices though doesn't guarantee a rise in all natural gas stocks, as there's a lot more than a price reversal happening in the industry.
For investors interested in natural gas companies, here's this week's wrap-up of what you need to know:
- Pipeline proposals in NY, Michigan – Natural gas pipeline operators are hoping that New York Governor Andrew Cuomo will lift a four-year ban on hydraulic fracturing in the state. Cuomo is expected to issue a decision later this month but there is already a $750 million pipeline proposed for southwestern New York. The Constitution Pipeline, proposed by William Partners L.P. (NYSE: WPZ) and Cabot Oil & Gas Corp. (NYSE: COG), would run through the Marcellus Shale formation in Pennsylvania and New York where the shale is rich in gas. Opponents of the pipeline worry about environmental effects, safety damage and the use of imminent domain to seize land. "The only reason they'd spend $750 million would be to get the infrastructure in place for a hoped-for future based on Gov. Cuomo's decision," pipeline opponent Mark Pezzati, a resident of Ande along the proposed route in rural Delaware County, told The Wall Street Journal. "They'll be sitting pretty to control all the gas flow from New York wells."
DTE Energy Co. (NSYE: DTE), Enbridge Inc. (NSYE: ENB), and Spectra Energy Corp. (NYSE: SE) announced plans for a 250-mile natural gas pipeline that would originate in northeastern Ohio, follow existing utility passages across the state and connect with an existing line in Michigan. The proposed pipeline needs the approval of the Federal Energy Regulatory Commission and could be in service by November 2015.
- Gazprom faces anti-trust probe– Gazprom, the Russian natural gas exporter which supplies a quarter of European gas is under investigation by the European Union. The investigation is trying to find out if Gazprom imposed unfair prices by linking natural gas and oil prices, prevented gas from being traded between countries and slowed down the diversification of supply. "We are interested in the long-term contracts between Gazprom and the companies who they supply," Antoine Colombani, a spokesman for the Brussels-based commission told Bloomberg News. "If the probe reveals new information, we will then expand the investigation." Gazprom defended its pricing standards saying they are in line with what competitors use and that the company pays great attention to follow international laws in the areas it operates.
In a statement, the EU's antitrust agency said Gazprom's behavior may lead to higher prices, harm Europe's security of supply and hurt EU consumers. Dmitry Peskov, a spokesman for Russian President Vladimir Putin, was surprised by the news of the investigation. "It's not clear why this suddenly has become a subject for investigation," Peskov said by telephone Wednesday. "Why is there this assertion of a violation of the security of supplies? Because Gazprom was, is and will be a reliable supplier of natural gas to its customers."
- BP accused of gross negligence- The Department of Justice has made its strongest push to criminally punish BP PLC (NSYE ADR: BP) for its role in the Deepwater Horizon disaster. In a memo sent to the New Orleans court the DOJ accused BP of a "culture of corporate recklessness," shown through email exchanges among BP staff before the explosion on the rig. If the DOJ can establish gross negligence, the penalties under the Clean Water Act would be up to $21billion, depending on how much oil was spilled. Compensatory and punitive damages would be added on top of that sum.
The memo came in response to a motion filed by BP last month for the court to approve its settlement with gulf fishermen and other private sector victims of the spill, which the company has estimated will cost it $7.8 billion. The DOJ has stated that it is too early to estimate the total amount of damage done to the Gulf. The memo also accuses Transocean LTD (NSYE: RIG), owner and operator of the Deepwater Horizon rig, of gross negligence for its role in having "stunningly, blindingly botched" a key test of whether the well had been properly sealed. A trial of the civil case over penalties and damages has been set for January 14, 2013. No criminal charges relating to the causes of the spill have been filed.
Related Articles and News:
- Money Morning:
These Natural Gas Stocks Will Bounce Back As Demand Rises
- Money Morning:
As Prices Rise, Here's How to Play Natural Gas Companies
- Bloomberg News:
Gazprom Faces EU Antitrust Probe on Eastern Europe Gas Sales
- The Wall Street Journal:
Gas pipeline operators set sights on NY