Investing Topics: LNG Exports

Much of the recent upside in natural-gas prices reflects the unusually hot summer weather, expectations for a cold winter and modest supply growth, as oil and gas producers have curbed their drilling and completion activity in prolific US shale plays. However, our intermediate- to long-term outlooks for gas supply and demand remain unchanged–nor has our investment strategy.

We prefer to buy shares of high-quality producers that have strong balance sheets and high-quality acreage in leading basins–names that will take market share over the long term.

However, timing is a critical component of our strategy.

Investors should buy when gas prices inevitably tumble because of excess production and an unusually warm winter–a confluence of events that has occurred on several occasions over the past decade. You might also consider taking smaller positions in some higher-beta names that we wouldn’t regard as the best long-term holdings.

It’s equally important to take some profits off the table when natural-gas prices rip higher. The time for such a move is imminent.

Investors should also maintain exposure to well-positioned midstream operators that stand to benefit from accelerating production growth in low-cost basins. With natural-gas demand expect to climb in coming years and the US boasting a world-class resource base, the potential volumetric growth is truly impressive.