Coldest Winter
Bad weather was good to U.S. utilities in the first quarter. They beat earnings estimates after the coldest winter in three decades stoked demand for electricity and gas. Similarly, the rise in prices that accompanied stronger winter demand helped Chesapeake Energy Corp., a gas producer, boost profit to $425 million from $58 million a year ago.
The expectation for worsening weather is just one more reason to invest in gas. Gas producers already were buoyed by forecasts that Europe will turn to the U.S. for supplies as Russia, stokes military tension with Ukraine, said Donald Coxe, who advises on $190 million at Coxe Advisors LLP in Chicago. Russia is Europe’s biggest supplier, and most of those supplies flow through pipelines in Ukraine.
“The total market for North American natural gas has been transformed in two months,” Coxe said. “A thousand cubic feet of natural gas in the ground for delivery five years from now is probably worth 30 percent more than it was.”
Pipeline Winners
Companies that distribute gas are also winners. Largest proportional inflow into exchange-traded funds on May 5 was at First Trust North American Energy Infrastructure Fund, which owns pipeline companies, gas distributors and utilities. Almost $114 million poured into the fund, equivalent to 21 percent of its value, according to data compiled by Bloomberg.
Market-beating gains haven’t been restricted to oil and gas. Total returns year to date are 99 percent for the Guggenheim Solar Energy Index ETF, and 55 percent at First Trust Global Wind Energy Fund, according to data compiled by Bloomberg.
It’s risky to base investment decisions on global warming, since the outlook for more volatility in the weather means accurate predictions will become harder to forecast, Smith said.
“Extreme can mean an exceptionally mild winter or an exceptionally cool summer,” Smith said. “It means climate becomes less predictable. That’s going to make planning difficult for power companies.”