Shares of Niska Gas Storage (NYS: NKA) have been roaring over the last week. After trading near 52-week lows since the end of 2011, the stock has jumped 20% in just five days from $9.55 to more than $12.10 at one point. The company had been suffering at the hands of low natural-gas prices and a remarkably warm winter, which further suppressed demand for the commodity. Niska, North America's largest independent natural-gas storage company, makes much of its profits off trading volatility in gas prices, as well as contracts to store it for seasonal usage. It stores gas during warm months and then uses it for heat in the winter.
Changes are afoot
Analysts have been calling for a bottom in natural-gas prices for months now, as the shale boom has caused a gas glut and decade-low prices. It appears a bottom could finally be arriving. Shares of United States Natural Gas (NYS: UNG) , an ETF that tracks natural-gas prices, have risen almost 10% in the last week as some market-watchers call the commodity oversold and major producers cut back on output. On Monday ConocoPhillips (NYS: COP) said it would continue curtailing gas production to the tune of 9,000 barrels of oil equivalent per day. Earlier in the year, Chesapeake Energy, (NYS: CHK) the nation's second-largest gas producer announced it would cut production and reduce spending by 70% in gas fields. A company executive recently reaffirmed his belief that prices would rebound, as the production boom and warm weather amounted to a "perfect storm" that was unlikely to repeat.
While rising gas prices are a boon for Niska, they're not the only factor in the equation. What really seems to be driving the stock's surge is concern that storage capacity may run out before heating season picks up in November. The chart below shows current storage levels (in red) compared with the five-year range (in gray).
As you can see, storage levels are way ahead of the norm -- 57%, to be exact -- for this time of year. Available storage capacity in the continental U.S. tops out around 4,150 billion cubic feet. For comparison, Niska offers 206 BCF of storage in North America. It seems the likely result of the lack of storage capacity would be either a greater demand for storage facilities such as Niska's, driving up prices for its services, or a further cutback in production, which would send up gas prices. Both would be good news for Niska as a price increase would make storage more attractive and increase arbitrage opportunities.
We'll learn more about the company's prospects and the impact of limited storage capacity when it reports earnings in the coming weeks.
Energy markets are as volatile as ever with the shale boom and oil prices over $100 per barrel due to unstable conditions in Iran. Luckily for you, our experts at the Fool have found a great energy play to add to your portfolio. It's an oil and gas equipment supplier whose shares are up more than 50% in the last seven months. Better yet, its profit jumped 49% this past quarter, and it's still flying under the radar with a forward P/E of just 11. Get the name of his hot stock and learn why it's such a great investment in our special free report: "The Only Energy Stock You'll Ever Need." All you have to do is click right here.
At the time thisarticle was published Fool contributorJeremy Bowmanholds no positions in the companies in this article.Motley Fool newsletter services have recommended buying shares of Chesapeake Energy. The Motley Fool has a disclosure policy.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.