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As the world transitions to cleaner energy sources, natural gas is playing an increasingly important role in the global energy landscape. With its relatively low emissions and abundant reserves, natural gas is a crucial bridge fuel in the path to net-zero emissions. This makes natural gas stocks an attractive investment opportunity, offering potential for both stable returns and growth.

Key Takeaways:

• Cheniere Energy leads in LNG exports, capitalizing on growing global demand
• Kinder Morgan provides essential midstream infrastructure and stable cash flows
• EQT Corporation is the largest natural gas producer in the United States
• Phillips 66 offers diversified exposure through its integrated energy operations
• Ovintiv Inc. focuses on efficient production and strong financial discipline

The Natural Gas Landscape

Before we explore the top stocks, it’s essential to understand the current state of the natural gas industry. Natural gas remains a crucial component of the global energy portfolio, serving as a cleaner alternative to coal and a reliable backup for renewable energy sources. The industry faces both challenges and opportunities, including:

1. Growing demand for cleaner energy sources
2. Technological advancements in extraction and transportation
3. Regulatory changes affecting production and distribution
4. Geopolitical factors influencing global supply and demand
5. Competition from renewable energy sources

Natural Gas Global Market Growth:

• The global natural gas market size is expected to grow from $1,127.09 billion in 2024 to $1,518.88 billion in 2028, at a CAGR of 7.7%. thebusinessresearchcompany
• North America, particularly the U.S., is the largest producer and consumer of natural gas, with widespread usage in various sectors. fortunebusinessinsights

Performance Comparison of Top Natural Gas Stocks

The 5 Best Natural Gas Stocks to Watch

The companies we have listed are based on hedge fund interest, using data from Insider Monkey’s Q2 2024 report.

1. Cheniere Energy Inc. (LNG)

Number of Hedge Fund Holders (Q2 2024): 65

Cheniere Energy Inc. (NYSE: LNG), based in Houston, Texas, is a global leader in the LNG industry. As the #1 US LNG producer and the 2nd largest global LNG operator, it has exported approximately 3,570 cargoes since 2016 to 40 countries and regions worldwide. Through its subsidiary Cheniere Energy Partners, L.P. (NYSE: CQP), it operates the Sabine Pass LNG terminal in Louisiana, which began operations in 2016.

The company’s extensive portfolio includes Cheniere Marketing, LLC for global LNG sales, and Cheniere Corpus Christi Pipeline, L.P., managing a crucial 21.5-mile gas pipeline. The Corpus Christi LNG Terminal, launched in 2018, marked a significant milestone as the first greenfield LNG export facility in the contiguous United States. With 9 trains in operation across its facilities, Cheniere has established a robust production capacity.

According to insidermonkey, Millennium Management, led by Israel Englander, has a $534.79 million position in Cheniere Energy Inc. (LNG), comprising 3.06 million shares.

Cheniere’s Q2 2024 results reflect robust performance, with revenues of $3.3 billion and $7.5 billion for the three and six months ended June 30. Net income reached $0.9 billion and $1.4 billion, while Consolidated Adjusted EBITDA hit $1.3 billion and $3.1 billion for the respective periods. The company raised its 2024 guidance, projecting Consolidated Adjusted EBITDA of $5.7-$6.1 billion.

Under its capital allocation plan, Cheniere repurchased 3.1 million shares for $496 million in Q2, totaling 10.7 million shares for $1.7 billion in H1 2024. The company also repaid $300 million of debt and paid $0.870 per share in dividends during H1. A new 0.5 mtpa LNG agreement with Galp was secured, with deliveries expected in the early 2030s.

Regulatory progress continued with FERC issuing a positive EA for the CCL Midscale Trains 8 & 9 Project. Credit ratings improved across the board, with Moody’s upgrading Cheniere Partners to Baa2 and SPL to Baa1. Fitch also upgraded CCH to BBB+ in July, reinforcing Cheniere’s strengthened financial position.

According to Wall Street Analyst on LNG stock. Of the 24 analysts following the stock, 17 give it a Buy and 3 has it at Hold.

Why We Picked Cheniere Energy Inc.:

We selected Cheniere Energy for its dominant position in the LNG export market. As the largest LNG exporter in the United States, Cheniere is well-positioned to capitalize on the growing global demand for natural gas. The company’s state-of-the-art LNG terminals and long-term contracts with creditworthy customers provide a stable foundation for future growth .

2. Kinder Morgan Inc. (KMI)

Number of Hedge Fund Holders (Q2 2024): 41

Kinder Morgan stands as North America’s premier independent transporter of petroleum products, moving around 2.4 million barrels daily. As the leading natural gas pipeline operator in the U.S., it handles about 40% of the nation’s natural gas through its extensive network.

The company’s infrastructure spans approximately 79,000 miles of pipelines and 139 terminals. This vast system facilitates the transportation of various resources, including natural gas, gasoline, crude oil, and CO2. Additionally, Kinder Morgan’s terminals provide storage and handling services for a diverse range of products, from renewable fuels to chemicals and vegetable oils.

According to insidermonkey, Castle Hook Partners, led by Josh Donfeld and David Rogers, holds a $206.21 million stake in Kinder Morgan Inc., comprising 10.38 million shares.

Kinder Morgan’s Q2 2024 results show EPS of $0.26 and DCF per share of $0.49. Net income reached $575 million, down slightly from $586 million in Q2 2023. The company’s DCF rose to $1,100 million from $1,076 million year-over-year, demonstrating resilience in challenging market conditions.

The CO2 segment faced headwinds, with crude volumes down 13%, CO2 sales dropping 8%, and NGL volumes declining 17%. SNG’s South System Expansion 4 project, valued at $3 billion, aims to increase capacity by 1.2 Bcf/d. The $263 million Altamont Green River Pipeline project will address production constraints in the Uinta Basin.

Construction progresses on multiple projects: the $94 million South Texas to Houston Market expansion, the $168 million KMTP system enhancement, and the $670 million Evangeline Pass project. These initiatives will significantly boost natural gas delivery capabilities across various regions, with completion dates ranging from late 2024 to 2028.

According to Wall Street Analyst on KMI stock. Of the 22 analysts following the stock, 6 give it a Buy, 11 has it at Hold and 1 calls it a Sell.

Why We Picked Kinder Morgan Inc.:

Kinder Morgan made our list due to its extensive natural gas infrastructure network and diversified asset base. As the operator of the largest natural gas transmission network in the U.S., Kinder Morgan plays a crucial role in the industry. The company’s stable cash flows from long-term contracts and attractive dividend yield make it an appealing option for income-focused investors.

3. EQT Corporation (EQT)

Number of Hedge Fund Holders (Q2 2024): 45

EQT Corporation stands as the premier natural gas producer in the United States, with a daily output of 5.3 billion cubic feet. The company’s operations are concentrated in the Appalachian Basin, particularly in the prolific Marcellus shale play. With 1.8 million gross acres and 88% of its proved reserves in this formation, EQT dominates the region’s gas production landscape. In recent years, EQT has bolstered its position through strategic acquisitions, including the $2.4 billion purchase of Tug Hill and XcL Midstream.

According to insidermonkey, Sourcerock Group, managed by Christian Zann, holds a $134.9 million stake in EQT Corporation, consisting of 3.65 million shares.

EQT Corporation’s second-quarter 2024 results showcased impressive performance across multiple fronts. The company’s early acquisition of Equitrans Midstream Corporation led to $150 million in savings. Sales volumes reached 508 Bcfe, surpassing guidance, while capital expenditures of $576 million remained below projections, reflecting enhanced operational efficiency and promising developments in completion technology.

Financial improvements were evident as total debt decreased from $5.8 billion to $5.0 billion since year-end 2023. EQT retired $600 million of 2025 senior notes and expanded its revolving credit facility to $3.5 billion. The company also secured a 2 million tonnes per annum liquefaction tolling agreement with Texas LNG, diversifying its market reach.

EQT’s 2023 ESG report highlighted early achievement of emission reduction targets. The company’s total per unit operating costs dropped to $1.40 per Mcfe, while southeast gas prices via Mountain Valley Pipeline positively impacted differentials. These results underscore EQT’s commitment to operational excellence and environmental stewardship as it progresses towards its 2025 net-zero goal.

According to Wall Street Analyst on EQT stock. Of the 23 analysts following the stock, 12 give it a Buy and 9 has it at Hold.

Why We Picked EQT Corporation:

EQT Corporation stands out as the largest natural gas producer in the United States. The company’s focus on low-cost production in the prolific Marcellus and Utica shales, combined with its strong balance sheet, positions it well for future growth. EQT’s commitment to environmental, social, and governance (ESG) principles also aligns with increasing investor focus on sustainability.

4. Phillips 66 (PSX)

Number of Hedge Fund Holders (Q2 2024): 34

While primarily known as a refining and marketing company, Phillips 66 has significant exposure to the natural gas sector through its midstream operations and chemical business. Phillips 66 has expanded its natural gas operations through the acquisition of Pinnacle Midstream, which includes the Dos Picos system in the Midland Basin. This complex boasts a processing capacity of 220 MMcf/d and 80 miles of gathering pipelines, with room for expansion. The purchase strengthens Phillips 66’s presence in this resource-rich area.

The company’s natural gas liquids (NGL) business is also substantial, featuring 11 fractionation plants and various storage and pipeline assets. With a total NGL fractionation capacity of 719,000 BPD, Phillips 66 is well-positioned to capitalize on projected NGL production growth, which is expected to outpace crude oil by 2030.

According to insidermonkey, Harris Associates, part of Natixis Global Asset Management, holds 8.45 million shares of Phillips 66 (PSX), valued at approximately $1.19 billion.

Phillips 66 reported second-quarter earnings of $1.0 billion, with adjusted earnings of $984 million. The company returned $1.3 billion to shareholders through dividends and share repurchases. Strong performance was noted across segments, with record Midstream NGL volumes and high Refining utilization.

The company made progress on strategic priorities, including business transformation savings and asset dispositions. The Rodeo Renewable Energy Complex reached full processing rates, establishing Phillips 66 as a leader in renewable fuels. The acquisition of Pinnacle Midstream further advanced their NGL strategy.

Financial stability remained strong, with $2.4 billion in cash and $4.1 billion available credit. Phillips 66 is on track to meet its shareholder distribution target by year-end, having already distributed $11.2 billion since July 2022.

According to Wall Street Analyst on PSX stock. Of the 21 analysts following the stock, 11 give it a Buy and 5 has it at Hold.

Why We Picked Phillips 66:

While not a pure-play natural gas company, Phillips 66 was chosen for its significant exposure to the natural gas sector through its midstream operations and chemical business. The company’s integrated operations across the energy value chain provide stability and diverse growth opportunities. Phillips 66’s strong balance sheet and history of shareholder returns further enhance its appeal.

5. Ovintiv Inc. (OVV)

Number of Hedge Fund Holders (Q2 2024): 43

Ovintiv (formerly Encana) is a North American energy producer with a significant focus on natural gas production. The company’s multi-basin approach and operational efficiency make it an intriguing option for investors seeking exposure to natural gas exploration and production.

Ovintiv’s portfolio spans four major regions: Oklahoma’s Anadarko Basin (SCOOP and STACK), western Canada’s Montney, Utah’s Uinta Basin, and the Permian Basin. These areas offer diverse unconventional resources, from black oil windows to multi-layered deposits. This strategic spread provides Ovintiv with significant exploration and production potential across North America.

According to insidermonkey, Millennium Management, led by Israel Englander, holds 5.76 million shares of Ovintiv Inc. (OVV), valued at $269.95 million.

Ovintiv’s first quarter 2024 financial report shows net earnings of $338 million, or $1.24 per diluted share. The company generated $659 million in cash from operating activities and $1,035 million in Non-GAAP Cash Flow, while investing $591 million in capital expenditures.

Production reached 574 MBOE/d, including 211 Mbbls/d of oil and condensate. Upstream operating costs were efficiently managed, with expenses at $4.52 per BOE and transportation costs at $7.25 per BOE.

Excluding hedges, realized prices were $74.62 per barrel for oil and condensate, $21.03 for other NGLs, and $2.21 per Mcf for natural gas. Including hedges, the total average realized price was $37.84 per BOE.

According to Wall Street Analyst on OVV stock. Of the 29 analysts following the stock, 17 give it a Buy, 9 has it at Hold and 2 calls it a Sell.

Why We Picked Ovintiv Inc.:

Ovintiv rounds out our top 5 list with its multi-basin approach to natural gas production and focus on operational efficiency The company’s diverse portfolio of assets across multiple basins provides exposure to some of the most productive natural gas regions in North America. Ovintiv’s strong free cash flow generation and commitment to returning capital to shareholders make it an attractive option for investors.

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Factors Influencing Natural Gas Stocks

When considering investments in natural gas stocks, it’s crucial to understand the various factors that can impact their performance. Some key considerations include:

1. Global energy demand: The overall demand for energy, particularly in emerging markets, can significantly influence natural gas consumption and prices.
2. Environmental regulations: Stricter environmental policies may favor natural gas as a cleaner alternative to coal, potentially boosting demand.
3. Technological advancements: Innovations in extraction, transportation, and utilization of natural gas can impact the profitability and growth prospects of companies in the sector.
4. Geopolitical events: International conflicts, trade disputes, and political changes can affect global natural gas supply and demand dynamics.
5. Competition from renewable energy: The growing adoption of renewable energy sources may impact the long-term outlook for natural gas.
6. Weather patterns: Extreme weather events and seasonal variations can influence natural gas demand for heating and cooling.
7. Infrastructure development: Investments in pipelines, storage facilities, and export terminals can affect the ability of companies to capitalize on market opportunities.
8. Economic conditions: Overall economic growth or contraction can impact industrial demand for natural gas and related products.

The Role of Natural Gas in the Energy Transition

As the world moves towards a cleaner energy future, natural gas plays a crucial role in the energy transition. Understanding this role can help investors better evaluate the long-term prospects of natural gas stocks:

1. Bridge fuel: Natural gas is often viewed as a bridge between fossil fuels and renewable energy sources, offering lower emissions than coal while providing reliable baseload power.
2. Backup for renewables: Natural gas power plants can quickly ramp up production to compensate for the intermittency of wind and solar energy.
3. Hydrogen production: Natural gas can be used to produce hydrogen, which is seen as a potential clean fuel for transportation and industrial processes.
4. Industrial applications: Many industrial processes rely on natural gas as a feedstock or energy source, making it an essential component of the global economy.
5. Residential and commercial use: Natural gas remains a popular choice for heating and cooking in homes and businesses.

Risks and Challenges in the Natural Gas Sector

While natural gas stocks offer potential rewards, it’s crucial to understand the risks and challenges facing the industry:

1. Price volatility: Natural gas prices can be highly volatile, impacting the profitability of producers and the attractiveness of gas-fired power generation.
2. Regulatory changes: Shifts in environmental regulations or energy policies can significantly affect the natural gas industry.
3. Competition from renewables: As renewable energy sources become more cost-competitive, they may erode natural gas’s market share in power generation.
4. Infrastructure constraints: Inadequate pipeline capacity or export facilities can limit the ability of companies to capitalize on market opportunities.
5. Environmental concerns: Issues such as methane leaks and fracking-related water contamination pose reputational and regulatory risks for the industry.
6. Geopolitical risks: International conflicts or trade disputes can disrupt global natural gas markets and impact company performance.
7. Technological disruption: Advances in energy storage or other technologies could potentially reduce reliance on natural gas in some applications.

Conclusion

The natural gas industry continues to play a vital role in the global energy landscape, offering opportunities for investors in 2024 and beyond. The five stocks highlighted in this article – Cheniere Energy, Kinder Morgan, EQT Corporation, Phillips 66, and Ovintiv – represent diverse segments of the natural gas value chain and offer unique investment propositions.

FAQs

1. Are natural gas stocks a good investment in 2024?

Natural gas stocks can be a good investment for those seeking exposure to the energy sector. However, their performance depends on various factors, including global energy demand, regulatory environment, and company-specific strengths. It’s essential to research thoroughly and consider your investment goals before making any decisions.

2. How do natural gas stocks compare to renewable energy stocks?

Natural gas stocks and renewable energy stocks offer different risk-reward profiles. Natural gas companies often provide more stable cash flows and dividends, while renewable energy stocks may offer higher growth potential but with increased volatility. A diversified energy portfolio may include both types of stocks.

3. What are the main risks associated with investing in natural gas stocks?

Key risks include price volatility of natural gas, regulatory changes, competition from renewable energy sources, environmental concerns, and geopolitical factors that can impact global supply and demand.

4. How does the shift towards renewable energy affect natural gas stocks?

While the transition to renewable energy may pose challenges for natural gas in the long term, natural gas is expected to play a significant role as a “bridge fuel” in the medium term. Companies that adapt to the changing energy landscape and invest in complementary technologies may be better positioned for the future.

5. What should I look for when evaluating natural gas stocks?

Key factors to consider include the company’s financial health, operational efficiency, growth prospects, dividend policy, environmental practices, and exposure to different segments of the natural gas value chain. Additionally, pay attention to the company’s strategy for adapting to the evolving energy landscape.