July 2022 is off to a turbulent start for the liquified natural gas (LNG) sector. Prices began the month by rising, pushing natural gas stocks and the ProShares Ultra Bloomberg Natural Gas (NYSEARCA:BOIL) exchange-traded fund into the green. But since then, the LNG producers that were quick to rise last week have been trending steadily downward as experts cast a skeptical eye toward the sector. Uncertainty is creeping in, and one prominent agency thinks global demand is about to slow down.
What’s Happening to Natural Gas Stocks
Since markets opened after the long weekend, natural gas stocks have been in free fall. Industry leader Cheniere Energy (NYSEAMERICAN:LNG) attempted to rally after an early morning fall, but has been volatile overall. As of this writing, it is down 3%.
The future looks more questionable for some of its peers. EQT Corporation (NYSE:EQT) is down 6% for the morning and shows no signs of a rebound. Things look worse for Chesapeake Energy (NASDAQ:CHK) and Southwestern Energy (NYSE:SWN), both of which are down roughly 8%.
Let’s take a closer look at what’s pushing natural gas stocks down today.
Agency Thinks LNG Demand Will Slow
The primary factor behind the decline of LNG prices today is a new report from the International Energy Agency (IEA). The report forecasts high natural gas prices will cause demand for fossil fuels to slow in the years ahead. According to the IEA, demand for natural gas across the globe will increase by 140 billion cubic meters (BCM) between 2021 and 2025. That figure isn’t even half the increase of the most recent five-year period, roughly 370 BCM. As MarketWatch reports:
“The revised forecast is mostly due to expectations of slower economic growth rather than buyers switching from gas to coal, oil or renewable energy. While the burning of gas emits less planet-warming carbon dioxide than other fossil fuels, methane released during the extraction process is a significant driver of climate change.”
If rising natural gas prices are going to slow industry growth, the recent Freeport LNG crisis certainly isn’t helping. As Reuters reported, on June 8, the Texas-based company suffered a significant loss as a “blast and fire knocked out Freeport LNG’s 15 million tonnes per year (mtpa) Quintana plant, exacerbating global LNG shortages.” This weighed heavily on natural gas prices in the U.S. Now the plant has been blocked from restarting due to safety concerns.
The Bottom Line on Natural Gas Stocks
While Freeport’s future hangs in the balance, it remains an ongoing negative catalyst for natural gas stocks. The compromised LNG supply is likely to keep pushing prices up. But as the IEA report emphasized, high prices are not what the industry needs right now.
This means natural gas stocks are likely to continue to struggle. These shares boomed this spring, but all market cycles inevitably go bust. Now, investors are about to shift their focus to sectors with more growth potential, pushing natural gas stocks down even more.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
