It has been a wild year so far for energy, and we’re only in the middle of May… buckle up, because things are poised to get wilder and there’s money to be made in the space because of it. Namely, from natural gas, which has seen a rise in demand and cost since early March and it doesn’t look like there will be any slowing to that trend, not in today’s environment… which is being hit by factors such as slowing U.S. production growth, demand from countries looking to break their dependency on Russia, and already sweltering temperatures this early in the year.
While the United States is looking to fill demand (and we are the world’s largest producer of natural gas, producing about 97 billion cubic feet per day), ramping up won’t be so quick. We need to upgrade and build-out our infrastructure and work to build out our gas storage capabilities. In fact, we have less natural gas in storage than normal right now… about 16% below our five-year average for supply.
Natural gas is in high demand, and it will stay that way as it will play a vital role in transitioning the world to cleaner fuels. Natural gas is known as a cleaner-burning fuel, with about half the emissions of coal, and it’s becoming increasingly important for global energy security. Also, given the fact that the world must invest in the fuel through infrastructure, transportation, storage, processing, and exporting, there is a market around the important fuel… and companies are buzzing about it, and getting in gear to capitalize off it.
The perfect example is JPMorgan, which is putting massive investments into rebuilding in the U.S. natural gas sector, and they aren’t the only ones. Macquarie Group, Goldman Sachs, Wells Fargo, and Morgan Stanley have all ramped up activity in the space in anticipation of what’s coming down the pike… part of what’s coming down the pike is climate change, which is resulting in a hotter world, which means more demand for reliable energy.
Producers Get Creative
Forward-thinkers and those with an eye for seeing potential in this space are moving quickly to build and invest. One such company is Verbio, which recently launched a $115 million renewable natural gas, ethanol plant in Nevada, Iowa. The biorefinery has been touted as a game changer, as it will be making renewable natural gas from corn cobs, husks, and other crop residue that it will be purchasing from central Iowa farmers for the commercial production of renewable natural gas and ethanol.
The plant, which is on the site of the former DuPont cellulosic ethanol facility, will make renewable natural gas that contains the energy equivalent of 19 million gallons of ethanol each year and produce 60 million gallons of corn-based ethanol annually. This is important because no other company in the U.S. is making renewable natural gas using farm residue at an industrial scale.
For those in touch with what’s going on in this space, there are plenty of innovative companies to watch, including ProFrac Holding (PFHC), Excelerate Energy (EE) and privately held BKV Corp.
Excelerate Energy is a provider of floating liquefied natural gas (LNG) terminals founded by Kaiser in 2003 which owns and operates ten floating storage and regasification units. The company, headquartered in The Woodlands, Texas, operates in the United States, Brazil, Argentina, Israel, United Arab Emirates, Pakistan, and Bangladesh. While a good deal of its revenue comes from the Americas, the company has seen an uptick in contact from countries looking to move away from Russian gas imports, which bodes well for them and the space.
When initially exploring an IPO, the company was looking to sell 16 million shares at $21 to $24 each of its Class B common stock. The company made its debut on the New York Stock Exchange a month ago on April 13th, raising $384 million through the sale of 16 million shares at $24 each. The IPO values Excelerate at $2.54 billion, JP Morgan and Morgan Stanley are lead underwriters on the deal.
ProFrac Holding is a leading fracking services provider and largest privately owned provider of hydraulic fracturing services in North America, serving upstream E&Ps of unconventional oil and natural gas resources. Headquartered in Willow Park, Texas, ProFrac was founded in 2016 by the Wilks Brothers to provide fracking and well completion services to the Appalachian, East Texas, Louisiana, and Permian Basin Regions of the United States.
BKV Corp, a U.S. natural gas producer estimated to be worth up to $2 billion, is preparing for an initial public offering, holding meetings with investment banks to select underwriters for a possible listing later this year. The Denver, Colorado based business is a top 20 U.S. natural gas producer formed in 2015 and majority owned by Thai energy firm Banpu PCL. The company’s possible IPO depends on market conditions, but with no end in sight to the energy crisis, there should be no surprises.
As we go into the summer months amid already scorching temperatures and a conflict that is reshaping energy, companies like Excelerate Energy and ProFrac will continue to plunge into the space with fervor… and we’ll be watching. Keep coming back to see which ones turn up on my Buy List and we’ll keep you in the know about the latest developments.