Natural gas produces lower emissions than crude oil and coal while generating an equivalent amount of energy. Hence, the rising demand for cleaner-burning fossil fuels is brightening the outlook for natural gas exploration and production companies. Given the backdrop, is this the ideal time to invest in upstream players like EQT Corporation EQT and Antero Resources AR?
In its latest short-term energy outlook, the U.S. Energy Information Administration (“EIA”) forecasted this year's natural gas spot price at $4.30 per million BTU, significantly higher than $2.20 in the past year. In the United States, the EIA projected that this year’s demand for natural gas will increase 4% to 116 billion cubic feet per day (Bcf/d). This total demand comprises both domestic consumption and exports. The rising exports are being primarily aided by ramping up operations at two new LNG export facilities.
In its first quarter 2025 earnings transcript, upstream player EQT stated that the current production of natural gas in the domestic market (104 to 105 Bcf/day) is lagging behind the projected demand, which is likely to reach approximately 108 Bcf per day by the end of 2025 and rise further to around 114 Bcf per day by the end of 2026.
Thus, increasing demand and supply constraints will continue to aid the rally in the price of the commodity.
With the commodity’s pricing environment remaining favorable, explorers and producers will get incentives to ramp up explorations and production of natural gas to capitalize on the mounting demand for cleaner fossil fuels. Hence, it would be ideal for investors to bet on prospective natural gas producers. Here are two such stocks – EQT and AR - each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
EQT’s Resilient Free Cash Flow & Strong Financials
EQT is among the top producers of natural gas in the United States. The firm boasted that it will be able to cover its costs and still generate free cash flows, even if the commodity’s price slips to as low as $2.00 per MMBtu. Thus, considering the healthy projections for natural gas prices, the business environment of EQT will remain favorable. EQT, a pure-play Appalachian producer, also has an investment-grade credit profile.
AR’s Appalachian Playbook & Solid Production Outlook
Antero Resources, a pure-play Appalachian producer, is among the top five natural gas and NGL producers in the United States. With a significantly lower exposure to debt capital, AR is an investment-grade stock. It is well-positioned to gain from the expanding LNG export market, as roughly 75% of its produced natural gas is being delivered to the export market. Notably, AR has sufficient high-quality drilling locations in the Appalachian Basin to sustain its current production levels for more than two decades, brightening its production outlook. Hence, AR will continue to capitalize on the mounting clean energy demand and handsome natural gas prices.
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