The energy transfer stocks that dominate the energy market are being held up by a lack of supply and high prices.
In a new report, Credential Analytics has found that the energy transfer companies (ETCs) have been holding back in recent months, putting them at a potential disadvantage in the energy sector.
“The energy transfer sector is one of the largest sources of capital and innovation in the U.S. and has long been a target of hedge funds and large equity investors,” says James F. Loughlin, CEO of Credentials Analytics.
“We have seen a drop in the price of the energy companies, but also a drop off in their ability to produce new and profitable projects.
We are seeing this reflected in the stock market and a drop on the energy pipeline.”
Energy Transfer Partners is the largest ETC in the country and has recently been on a tear.
The company announced a plan to convert its oil storage and refining facilities to energy storage by the end of the year, and the plan is still in its infancy.
Its CEO, Bob Bakk, has said that the company will be producing “enough energy to power more than 20 million homes by 2023.”
In August, the company reported a net profit of $1.7 billion, making it one of its highest-paid executives ever.
The news of its massive growth in energy production, coupled with the fact that it has been able to use a mix of natural gas, diesel and renewable energy, has made it a favorite among hedge funds.
But Creditors warn that the price is out of control and that the ETCs are not producing enough of their energy.
“They are producing very little,” says Loughlins.
“I would not be surprised if their net profit were a little bit higher than it currently is.”
According to Credabilities Analytics, the stock of the ETC that is currently trading at around $15 per share has fallen to about $5.50 per share, or more than a third of its recent value.
Credients say the ETCo’s energy-to-gas ratio has also fallen.
“If the price drops to $5 per megawatt-hour, the ratio will be below 10:1.
So, the cost of gas is going to go down by $1 a megawatthand,” says Credors analysts.
The more projects that are developed, the more likely it is that the ETCs will fall short of their targets.” “
Credentials has found a correlation between the price decline and the number of projects being developed.
The more projects that are developed, the more likely it is that the ETCs will fall short of their targets.”
In other words, Citi and Vanguard are betting that the companies will not be able to meet their goals for energy-generation capacity, and so are taking a long-term view.
In the energy-related industry, the term “fossil fuel” is often used to describe any of a group of materials that contains large amounts of energy.
The term is sometimes applied to shale gas, coal and other sources of carbon-rich coal.
But it also applies to a group that includes oil and gas, which includes fossil fuel-producing oil and natural gas.
According to Loughins, CERC’s energy market is a complex beast.
“A lot of this is driven by supply and demand,” he says.
“And the more gas that is developed, in terms of the amount of gas that’s produced, the less likely you are to have to pay for that gas.”
Creductions in the amount and variety of natural-gas supplies could put the industry at a disadvantage in a variety of ways.
to Lougins, a decrease in natural-fuel production could result in higher prices for natural- gas-based fuels and higher prices at the pump for conventional gas.
“In the past, the natural-resource value of natural resources has been growing and growing.
Now, as natural resources are more expensive, they may be less valuable,” Loughsins says.
If natural gas prices are to stabilize, the energy industry needs to “work harder to reduce the amount that’s being used for production.”
CERC is currently in talks with several oil and mineral producers, and it’s hoping to negotiate an agreement with Chevron, Exxon Mobil and Shell.
It’s not clear whether the negotiations are going well.
“It’s still very early days in terms.
There’s no deal in place yet,” Lougin says.
The Energy Investment Alliance, a trade group, says that a “dramatic decline in gas prices has put a dent in the financials of energy producers,” and that “energy companies are experiencing a significant decline in cash flow.”
The Alliance says that CERC has been spending “far too much on projects that could be far more profitable and have lower costs,” such as natural gas-fired power plants.