Why Small-Cap Natural Gas Stocks Were Soaring Today
Shares of natural gas plays Tellurian (NYSEMKT: TELL), Centennial Resource Development (NASDAQ: CDEV), and Obsidian Energy (NYSEMKT: OBE) were soaring on Tuesday morning, though they moderated to gains of 3%, 3.4%, and 11.4%, respectively, as of 1:20 p.m. ET.
Both oil and natural gas prices rose again, with natural gas making new yearly highs. Concerns over Russia cutting off natural gas supplies to Europe could be affecting the price of U.S. natural gas, as it competes with export prices, which are currently soaring. While oil prices are up, they are still well below their June highs. However, natural gas prices have already exceeded their price in the immediate aftermath of the Russia-Ukraine war, and touched new yearly highs of $10 per thousand cubic feet, before backing off in midday trading. In fact, that intraday high for natural gas was actually a new 14-year high.
Each of the three stocks above is highly sensitive to natural gas prices. Tellurian is a highly levered bet on natural gas prices, since its main asset is the Driftwood liquefied natural gas (LNG) export plant, which will cost close to $13 billion to build and won't be ready for LNG conversion and export until 2026. As Tellurian raises money for the construction, it has also acquired some upstream natural gas production to generate some cash flow, recently buying EnSight, a Haynesville shale play that will increase its production by 30%. Therefore, Tellurian is highly dependent on robust natural gas prices now and through the end of this decade. So when natural gas prices are strong, Tellurian soars.
Source Fool.com
