3 Stocks to Benefit From the Spike in Natural Gas Prices

Record cold weather means energy stocks are heating up.

The Motley Fool

Cold weather has been a gift to natural gas producers. The arctic vortex that has gripped many parts of the United States and Canada is back and continues to impact natural gas demand and supply dynamics, at least for the short term.

As a result of this increase in demand, we have seen record natural gas storage withdrawals. The week of January 10 saw a 287 bcf (billion cubic feet) decrease in natural gas storage, which is the highest withdrawal in 20 years. Another significant data point that is bullish is the fact that natural gas storage has fallen below the five-year average level. According to the Energy Information Administration, natural gas storage levels are 528 bcf below last year’s levels (a 15% decline) and 315 bcf under the five-year average (a 10.1% decline).

Natural gas production has been negatively affected by the cold, as the extreme freezing temperatures have hampered the ability to keep production flowing as usual. As a result of these dynamics, natural gas prices in Alberta closed at $4.08 per btu yesterday, its highest level since June 2011. This represents a 28% increase over the average price in the first quarter of 2013 of $3.18.

3 energy companies likely to see a boost 

This is setting up for an earnings season that sees energy companies beating expectations and a lift in their stock prices. Let’s take a look at a few of the companies that are poised to benefit.

Although Encana (TSX:ECA, NYSE:ECA) is working on reducing its natural gas exposure (which may be another example of bad timing, only time will tell), the company is still leveraged to natural gas prices. And it has the option to easily increase natural gas production.

Birchcliffe Energy (TSX:BIR) operates in the Montney shale gas play and its production is comprised of 76% natural gas. The company has seen good production growth last year. Production increased 15% in the third quarter of 2013 and almost 17% in the first six months of 2013.

Tourmaline Oil Corp (TSX:TOU) is also heavily weighted toward natural gas production. Last year, 89% of its production was natural gas and the company is achieving very strong production growth rates (46% growth in production in the first nine months of 2013). And as icing on the cake, the company has a healthy balance sheet.

Foolish bottom line

As we enjoy the effect of stronger natural gas prices on our investments, the question for the longer term is whether or not this strength is here to stay. Have supply/demand fundamentals finally shifted?

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

TFSA and coins

TFSA Investors: 3 Incredible Stocks for 2024

Are you looking for stocks to buy and hold for years for your TFSA? These three stocks could deliver exceptional…

Read more »

A person looks at data on a screen
Stocks for Beginners

3 Warren Buffett Stocks to Hold Forever

Warren Buffett sold some shares in Apple (NASDAQ:AAPL), and the market had questions.

Read more »

Dividend Stocks

Golden Years Gain: Your CPP Benefits at Age 70

CPP users delaying pension payments until 70 will receive substantial monthly income streams in the golden years.

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Dividend Stocks

3 Dividend Stocks You Can Safely Hold for Decades

Top TSX dividend stocks are on sale.

Read more »

A bull outlined against a field

After Earnings, I’m Bullish on These 2 TSX Stocks

Given their solid performances and healthy growth prospects, I am bullish on these two TSX stocks.

Read more »

Woman has an idea
Bank Stocks

3 No Brainer Bank Stocks to Buy Now for Less Than $1,000

Canadian bank stocks like Toronto-Dominion Bank (TSX:TD) appear quite cheap today.

Read more »

Dividend Stocks

Where Will Canadian Utilities Stock Be in 5 Years?

Canadian Utilities (TSX:CSU) is a classic example of a stock where the dividend is all you get. Can the company…

Read more »

Man holding magnifying glass over a document
Dividend Stocks

2 Stocks I’m Watching for Big Passive Income

Consider Bank of Nova Scotia (TSX:BNS) and another top passive-income play to power your dividend portfolio!

Read more »