Stocks of North American natural gas exporters are trimming a three-year rally as the White House seeks a swift resolution to the war in Ukraine. Analysts say those companies could suffer even more if sanctions on Russian gas are lifted, adding new competition in their key markets.
Shares of Cheniere Energy Inc., the largest US exporter of liquefied natural gas, have fallen 3.6% in February, on pace for one of their worst months in the past year. The Netherlands’ natural gas benchmark price has slumped roughly 15% in the past week “as Russian talks with the US on a Ukraine peace deal/cease fire get underway,” Mizuho Securities analysts said on Tuesday.
Of course, cheaper gas is a boon for European countries that lost their access to Russian gas after the country invaded Ukraine in February 2022. However, it marks a sharp pullback for investors in stocks like Cheniere, and Golar LNG Ltd., which has more than doubled since the war began.
The tides have turned as the US set the wheels in motion for peace talks. The prospect of an agreement is weighing on North American producers of natural gas, and other commodities such as the fertilizer potash, that have benefited as sanctions on Russia shrunk competition. North American fertilizer producers including Nutrien Ltd. and Mosaic Co. have slumped on speculation that an end to the war may boost global supply of crop-nourishing ingredients from the region.
US natural gas exporters, like New Fortress Energy Inc., which is down 16% this month, “could be further impacted by uncertainty” as European gas and LNG prices tumble, Stifel analyst Benjamin Nolan wrote in a Tuesday note. He said that three of Russia’s five total LNG export facilities are currently subject to sanctions, knocking out 4% of global supply. Removing those penalties could pressure North American exporters.
Investors expect headlines to drive volatility in natural gas stocks in the coming weeks. However, some are trying to take a long-term view.
“Russia’s got a lot of gas but I think energy security has become pretty important to global leaders,” Rob Thummel, senior portfolio manager at Tortoise Capital said in an interview. He said he remains bullish on US natural gas stocks. “I think that was made pretty evident last time when Russia invaded Ukraine.”
For many countries in Europe, the reliability of US LNG supplies remains extremely important, Thummel said. “You know, Germany learned the hard way” that it’s too reliant on Russian supply, he said.
Jefferies analyst Lloyd Byrne said the “peace trade” has legs, even if European natural gas importers say they won’t be dependent on Russian natural gas again. “We’ll see on all of that,” Byrne wrote, adding that he sees energy prices coming down.
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