- Africa Mining: Malawi importing 65,000 tons of coal per year
- Mozambique Oil & Gas: Anadarko to spend $200 million pre-FID on Mozambique LNG project
- Markets: Natural Gas Markets Remain Ultra Tight
- Africa Oil & Gas: South Sudan Says Recovering Oil Production Boosts FX Reserves
- Global Gas Perspectives: LNG plant cost reduction between 2014 – 18
Natural gas bears have only focused on production, while ignoring the faster growth in demand.
I show the temporary factor responsible for 2018’s production growth that will dissipate next year.
As production growth slows and new demand sources come online, I predict a major gas supply shortage and higher prices in 2019.
Last April, I explained Why I’m Loading Up On The Most Hated Sector In The Stock Market. Six months later, I’m back with an update and to explain why I’m even more bullish today.
Back in April, the market consensus was that natural gas would be indefinitely trapped at sub-$3 prices. Rampant pessimism pushed share prices of America’s top-tier gas producers down to their lowest levels in over a decade by early 2018. The talking heads on TV warned investors that they should be “scared” to own natural gas stocks. Meanwhile, the same talking heads suggested investors pile into the high-flying FANG stocks.
Sensing a contrarian opportunity, I devised a basket of Appalachian-focused gas producers that I believed would handily outperform the FANGs by the end of 2020. In honor of Jim Cramer, I labeled these gas stocks with the ‘SCARE’ acronym. For new readers, the SCARE stocks include:
S – Southwestern Energy (SWN)
C – Cabot Oil and Gas (COG)
A – Antero Resources (AR)
R – Range Resources (RRC)
E – EQT (EQT)
From April 23rd through October 23rd, spot natural gas prices are up nearly 20% — from $2.74 to $3.22. Meanwhile, the SCARE stocks have gained an average of 2.9%, modestly trailing the average FANG gain of 4.4%. But we’re still in the early innings, and I’m expecting a big year for natural gas in 2019.
In this article, I’ll explain why the market is massively underpricing the possibility of a significant supply deficit in 2019. I’ll poke holes in the bearish argument, by explaining why the bears’ myopic focus on 2018’s temporary supply growth ignores the even bigger demand growth story… and a looming supply deficit in 2019.
But before we dig into the bullish fundamentals, let’s first consider the argument on the other side of the trade.