Shares in independent U.S. shale gas producers have rocketed in value since Russia invaded Ukraine on Feb. 24, posting double-digit percentage gains. Many hit 52-week highs after the White House pledged 50 billion cubic meters per year of U.S. gas exports to Europe by 2030.
"Equities are likely responding to improvements to the back end of the curve and constructive outlook on the potential for an uplift to North American LNG demand between 2025 and 2030, which comes on the back of a newly announced agreement between the Biden administration and EU to ship nearly 5 Bcf/d of LNG to the continent annually through 2030-plus," said Colton Bean, an analyst at energy investment bank Tudor Pickering Holt & Co., in a March 28 note.
The U.S.-EU agreement marked a "paradigm shift" for U.S. natural gas producers and LNG terminal operators, Sanford C. Bernstein & Co. analyst Neil Beveridge said. "In the near term, increased European LNG demand will result in higher prices and demand destruction in Asia to balance the market through higher prices."
"This is good for upstream LNG suppliers and bad for downstream gas utilities in Europe and Asia," Bernstein said.
The biggest winner in the share price rise was Haynesville Shale producer Comstock Resources Inc. Comstock's operations — located just to the north of the Gulf Coast's collection of LNG export terminals — are in one of the best positions to supply the terminals, and they are not limited by outbound pipeline capacity concerns as are operations in the much larger Marcellus Shale in Appalachia. Comstock will not likely stand alone in the play along the Texas-Louisiana border: Both Southwestern Energy Co. and Chesapeake Energy Corp. completed acquisitions in the Haynesville toward the end of 2021.
According to Bernstein, the U.S. is well positioned among the world's gas-producing countries to permit and build new LNG export projects quickly. "Assuming U.S. LNG moves in to fill the gap in European demand, then we believe that it will be the largest LNG exporter by 2025 and by far the largest LNG exporter by 2030, with over 200 million tonnes per annum of export capacity," Bernstein said. "In short, the U.S., which 15 years ago was poised to become an LNG importer, will now be the world's largest LNG exporter."
The change in the gas landscape has sparked client interest in shale gas producers, which have suffered through years of poor returns Tudor Pickering Holt analyst Matthew Portillo said.
"Our U.S. gas coverage still looks reasonably cheap, with stocks trading at 19% free cash flow/enterprise value and 21% free cash flow-to-equity on $85 per barrel oil and $4.30/Mcf in 2023," Portillo said.
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