Let’s start the week with a quick look at energy, shall we? There’s a new teaser pitch from the Motley Fool for their Stock Advisor newsletter ($59 first year, renews at ??, 30-day refund policy), and it’s all about natural gas.

But we’re jumping the gun a little bit… here’s the lead-in from the email ad I received…

“There’s a new energy source we call ‘Frozen Gold’taking the world by storm.

“And our analysts have found a way to play it.

“In fact, it’s so hot right now that Berkshire Hathaway recently ramped up its investments in this growing energy source by purchasing a 50% stake in a transport facility in Maryland for $3.3 billion.

“And the Saudia Arabian owned oil company, Aramco, made its first investment in Frozen Gold by agreeing to buy a stake in MidOcean Energy for $500 million.

“Not only that, but…

“We’ve found one little-known stock that we believe gives regular investors a chance to potentially make a mint from it too.”

Those hints are real events, though not tied specifically to the stock they’re teasing — Berkshire Hathaway Energy has been the operating partner of the Cove Point LNG export facility in Maryland for years, that’s a smallish LNG plant… and the only real one that’s not on the Gulf Coast. They just bought another 50% of the facility from Dominion Energy last year. And Aramco did buy into a couple big LNG projects in development, in Peru and Australia.

So… what clues do we get once we click through to the promotional video?

“It’s North America’s top producer of natural gas

“since 2020, this stock has returned an average of 120% per year to investors, over 639% in total returns to date.”

And these hints about the company’s size:

That would put the market cap somewhere in the neighborhood of $15-25 billion.  Not a tiny company, but firmly in the “mid-cap” range.

And one more hint:

“With the recent deals it has signed to expand its LNG Production worldwide, we believe it is just getting started.”

So who could that be?  Who has signed LNG deals, is somewhere in the neighborhood of a $20 billion market cap, and could be called “North America’s top producer of natural gas?”

Thinkolator sez: That pretty well has to be our old friend EQT, which I owned for a little while, and which Porter Stansberry has pitched since just after the Russian invasion of Ukraine as his “Gods of Gas” company, the dominant producer in the Marcelllus shale in the northeastern US. And, yes, the company that produces the most natural gas in the United States.

So what’s the story with EQT?  Well, it produces natural gas in the biggest gas-only field in the US (and maybe the world), in Pennsylvania and West Virginia, and they have done an excellent job of acquiring new drilling inventory pretty inexpensively, and controlling their costs to make sure they’re not drilling and producing too much gas at a time when demand is low and prices are cratering — as they have done so far this year. They have pre-sold some of their production for LNG export a few years down the road, and they have made a big push to try to get the government and industry to back natural gas export more aggressively, and allow the permitting of new export facilities and new pipelines.

Location and transportation is probably the biggest challenge for EQT, they’re up in Pennsylvania and would love to export to the very populated areas of the Northeast and export LNG via the East Coast, but Cove Point is the only East Coast export facility, and it’s booked up for years… and because the Northeast is so tightly populated, and generally governed by anti-fossil-fuel folks, it has been almost impossible to extend pipelines or create new pipelines. Even here in Massachusetts, we have sometimes have to depend on LNG imports because we have shut down the old coal plants and the end-of-life nuclear reactors from the 1960s, but refuse to allow a new gas pipeline to bridge the gap until offshore wind and/or other renewables can help make up our electricity generation shortfall.

So EQT doesn’t have particularly great access to export capacity, and they don’t have their own export trains (a train is the big refining/chilling system that turns natural gas into LNG, which is supercold and liquefied so it can be shipped in a specialized tanker), but they do have pretty decent distribution into the main pipeline systems, so their gas can get down to the Gulf Coast, and they just finished (and re-acquired control of) the Mountain Valley Pipeline project, which is the only new pipeline that has been approved on the East Coast in a long time, so they are pretty well positioned to feed natural gas to the Mid-Atlantic region… which is key right now, because Northern Virginia is the densest data center region in the US, so AI processing is boosting power demand in that part of the country.

It’s possible that EQT will become the next “Energy Major”, as Porter Stansberry has been saying for a couple years… but it’s not happening just yet. Mostly just because we still have a glut of natural gas in the US, though the price has recovered from the shock it had early this year, when President Biden put a halt on regulatory submissions for new LNG export facilities as part of his “kill fossil fuels” promise. I expect that’s probably just a temporary and empty political pledge, because we have a lot of strategic reasons to help our allies and export more natural gas, particularly when there’s so much of it in the US that producing it at current prices is almost not worthwhile… but you never know if or when that pledge might turn. And it’s not fast or easy to build new LNG export even if permitting is allowed — the new LNG plant planned by Tellurian (TELL), for example, is already permitted and approved and could theoretically move forward, but they can’t get financing for it, so it’s effectively on mothballs.

Here’s what I said to the Irregulars when I sold my small position in EQT earlier this year, just FYI:

“I’ve held a small position in EQT (EQT) for a couple years, bought as a way to get some small exposure to natural gas as the LNG export projects began to take hold. It’s still a fine company, they’re the best operator and the most efficient company in the Marcellus (Pennsylvania and West Virginia, mostly), and they continue to advocate for better access to transportation (LNG export, pipeline construction) to make their huge gas reserves more valuable in the future… but I’m realizing, over time, that this is not really a company I want to pay a lot of attention to or build into a large position. They face meaningful regulatory challenges, they operate primarily in the more-difficult-for-energy-companies northeast, mostly in Pennsylvania, where access to pipeline infrastructure to move the gas is limited and there’s limited potential for improvement in that area. It’s arguably still rationally valued, or even discounted, like most oil and gas companies, and the quality of the business, with excellent reserves and low operating costs, means they’ll almost certainly be a survivor, they are not spending heavily right now because prices are just too low to justify that… but I think it would take meaningful improvement in pipelines, or another meaningful jump in the price of US natural gas, to really make EQT realize more of its value.”

Will it move higher? Maybe. In theory, the rising demand for electricity as we see data center demand grow, more manufacturing return to the US, and more electrification in general (heat pumps, EVs, etc), should be good for natural gas, since demand will rise even if we don’t see growth in LNG export, and the other sources (solar, wind, new nuclear capacity) aren’t being built nearly fast enough to make up for retiring coal plants and closing down old nuclear plants… but it doesn’t have to mean that gas will spike up this year, or that improvement will happen in a straight line. I’ve been mostly just hiding in the pipeline owners, personally, since we at least know that nobody can easily build new pipelines, and therefor the existing ones should become gradually more valuable… but eventually natural gas and LNG export should become a better business than it has been since we stabilized after the Russian invasion of Ukraine and the quick pop that caused for gas prices.

The only real “pure plan” LNG company, Cheniere Energy (LNG) or Cheniere Energy Partners (CNQ), which owns the biggest LNG facilities in the US, has been holding up a little better than EQT and the actual gas producers… but not great. We also see the more volatile transport companies sometimes spike higher, as demand for the specialized LNG tankers has sometimes exceeded supply, that was discussed when we covered the “Putin’s stupidity made me rich” pitch from Alex Green last year. The gas-heavy producers are generally much smaller than the integrated energy companies or the largest oil companies, but there are plenty of pretty big ones — other large companies who produce primarily natural gas, and are very exposed to gas prices, include Southwestern Energy (SWN), Antero Resources (AR), Chesapeake Energy (CHK) and Coterra Energy (CTRA).

Have any thoughts on investing in gas (or oil?) Favorites for this “Frozen Gold” LNG sector? Let us know with a comment below…