Winter Storm Fern is predicted to have widespread impacts on energy and power production. Here are some stock and energy industry groups to watch as you prepare for this and future storms. Natural Gas Producers Natural gas price fluctuations are severe. A 70% rise in a commodity in less than two weeks is a record. Some natural gas stocks also found buyers, with importer Excelrate Energy (EE) soaring 28% this month. ExxonMobil (XOM) is considered an oil company, but it secretly has a large natural gas business. The stock continues to hit new all-time highs, soaring 12% in January. The big question is how much natural gas will go offline, with estimates ranging from 10 billion cubic feet to about 80 bcf. Stocks to watch: Based on FactSet data, the producers that analysts believe have the most upside are Antero Resources (AR) at 29.6%, EOG (EOG) at 24%, Expand Energy (EXE) at 21%, and Coterra Energy (CTRA) at 18%. Background: Winter Storm Uri in 2021 wiped out approximately 30 bcf of daily natural gas production, or approximately one-third of total U.S. production. Nevertheless, natural gas prices remained largely unchanged during the storm. Recent price increases are many times higher than four years ago. No one I’ve talked to or read the research is calling for higher natural gas prices. Warning emptor. Pipelines Natural gas is not pure gas. It also consists of small water particles. Water is often also part of the natural gas production process. The water will freeze. Natural gas equipment can freeze. Pipeline equipment may freeze. Pipelines also require power. The pipeline may not be working because there is no power. Stocks to watch: Pipeline operators also have exposure to potentially affected regions. Affected stocks with the most upside potential relative to analyst price targets include Energy Transfer (ET), OneOK (OKE), Kinder Morgan (KMI), Enterprise Products Partners (EPD), and Williams Koss (WMB). Two other companies with significant exposure to Texas include Targa Resources (TRGP) and Kinetik Holdings (KNTK). A notable ETF is Alerian MPL (AMLP). Background: Uri didn’t trigger a big move in pipeline stocks overall, but it marked the beginning of a multi-year uptrend for the group. However, this was more likely caused by the recovery after the coronavirus lockdown than by the storm. Utilities The biggest concern is that heavy snow, freezing rain and ice could cause power outages to millions of homes, some for extended periods of time. Stock to watch: Exelon (EXC) is the largest utility company in the U.S. by number of customers. It is occurring primarily in the Washington-Baltimore corridor and the Chicago area, both of which are expected to experience severe weather and bitter cold. Texas-based NRG Energy (NRG) provides power to more than 8 million homes and was severely impacted by Uri stock in 2021. NRG is also where analysts see the most upside, with a price target of 42% above the stock’s current level. Privately held Oncor is the largest electric utility company in Texas, but the majority of its stock is owned by publicly traded Sempra Energy (SRE). Two of the largest power companies in the Southeast are Southern Company (SO) and Duke Energy (DUK). Ferns will bring snow and cold to the Northeast, but it’s not expected to be a top 25 snow event. Background: Power companies are in the midst of a public relations battle over electricity rates and data centers. They’re going to want to work even harder to ensure they’re ready for this storm and future storms. Infrastructure and Grid Resilience Downed power lines must be repaired quickly. When temperatures are this low in some areas, time and lives saved can be equal. Utilities have their own in-house crews that perform many repairs, but there are also outside companies that may come to the attention of traders. Stock to watch: Quanta Power Services (PWR) is one of the biggest power line construction companies benefiting from what will undoubtedly become a louder voice for putting more power lines underground. Prosecutor Davison also believes that Mastec (MTZ) and Primoris (PRIM), which are rated buys, could see business in repair and investment. For long-term energy infrastructure builders, check out Eaton (ETN) and Schneider Electric of France (SU-FR). Context: This is not a short-term thing, it’s a long-term thing. Analysts say the large-scale power outages could draw attention to grid reliability issues and prompt more investment in the industry. LNG Exporters Slowdowns or shutdowns of natural gas or pipelines, or power outages, can temporarily hurt natural gas exporters who must freeze gas and load it onto ships. Stocks to watch: Cheniere (LNG) and Venture Global (VG) are the two biggest pure-play stocks, but traders and providers like Shell (SHEL) and Exxon could also be in the mix. Background: Long-term gas demand in Europe and Asia far outweighs short-term production impacts. The severe cold weather is not only a phenomenon in the United States, but also in Europe, where severe temperatures have caused demand to soar and inventories to decline. America’s need for LNG will continue for a long time. The energy story will be much bigger than this storm, the next storm, or the storm after. As of this writing, some of the worst predictions have not come true. But it will be a long few days for many parts of the country. Please stay safe.
