A significant increase in gas prices supported the quotations of companies that are both producers and distributors of gas, especially on the US market
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Natural gas and the stock market
Key sectors for gas
The significantly increased volatility of gas prices is of key importance not only for retail customers due to higher energy costs, but also for investors trying to take advantage of the current geopolitical situation. The main consumer of gas in the industry is the chemical sector, which uses blue fuel as a raw material in the production process (e.g. nitrogen fertilizers) and the energy sector. In the case of Polish companies, gas prices have a particular impact on two companies that use it as a raw material in the production process.
Examples of companies (PL)
PGNiG
PGNiG is the main gas supplier in Poland - in 2021 it was responsible for 88.7% of the domestic natural gas market. The current situation on the gas market is not clear for the PGNiG Group. Admittedly, the drastic increase in gas prices significantly increases the company's profits in the mining business, but on the other hand, there may be problems with payments by gas recipients who will not be able to bear the growing costs of their operations. The company's key customers include:
Orlen, Azoty, Lotos, PGE, KGHM, ArcelorMittal and PGNiG Termika.
Grupa Azoty
In the case of Grupa Azoty, which uses gas to produce nitrogen fertilizers, an important risk factor discounted by the market is the risk of blue fuel rationing, which has already happened in history. Grupa Azoty is the largest recipient of this raw material in Poland, consuming 2.3 billion cubic meters per year, which accounts for over 10% of the annual consumption in Poland. It is estimated that in Puławy, which is dependent on Grupa Azoty, the gas price may account for as much as 40% of total costs. Recently, the drastic increase in gas prices has caused a significant reduction in production. The operation of the installation for the production of nitrogen fertilisers, caprolactam and polyamide 6 was suspended. The company reduced the production of ammonia to approximately 10% of its production capacity.
Ciech
Ciech is another leader in the Polish chemical industry. Up to a certain point, in the case of this company, Russia's decision to turn off the gas tap in Poland had no direct impact on it, as Ciech does not use this raw material in the production process in Poland. However, it does use it in production at its German Stassfurt plant , so the general increase in gas prices raises its production costs. Russia's latest decision to cut off gas flows from Russia to Germany via Nord Stream 1 and 2 can dramatically change this situation. The main activity of the company is the sale of soda ash, however, the price of gas in annual contracts cannot be fully hedged, which would have a negative impact on the margin given the increase in the price of this raw material.
Company Examples (Global)
Range Resources
Range Resource Corp. engages in the exploration, development and acquisition of natural gas and oil deposits in the Appalachian and Mid-Continent regions. The company was founded in 1976 and is headquartered in Fort Worth, Texas.
Southwestern Energy
Southwestern Energy Co. is a holding company that explores, develops and produces natural gas, crude oil and natural gas condensate (NGL). It operates in the Exploration and Production (E&P) and Marketing segments. The E&P segment includes operations in Northeast Pennsylvania, West Virginia and Southwest Pennsylvania.
Shell
Shell Plc produces crude oil and natural gas. The company operates in the following segments: Integrated Gas, Mining, Petroleum Products, Chemicals and Corporate. The Integrated Gas Segment includes liquefied natural gas, conversion of natural gas into liquid fuels and other products.
Cheniere Energy
Cheniere Energy, Inc. conducts activities related to liquefied natural gas (LNG). It owns and operates LNG terminals and develops, builds and operates liquefaction projects near Corpus Christi, Texas and at the Sabine Pass LNG terminal. The company was founded by Charif Souki in 1996 and is based in Houston, Texas.
Results of selected companies against benchmarks
Performance of selected US companies with exposure to natural gas against the benchmark
A significant increase in gas prices supported the quotations of companies that are both producers and distributors of gas, especially on the US market. Investing in these stocks could yield a significant return from early 2022, especially in the face of the overall decline in the US stock market. The situation is different on the Polish market, but in this case the drastic deterioration of the geopolitical situation as a result of the outbreak of war in Ukraine, the risk of energy blackmail and the general outflow of capital towards safer markets are of importance.
