3 bargain gas stocks to fire up your portfolio

If ever there is a time to take the plunge and invest in energy companies with exposure to natural gas and LNG, it’s now.

There are a whole slew of important reasons behind this, but two of most significant are the increasing price for LNG and the price jump forecast for domestic natural gas, driven by demand from Australia’s east coast states.

In February, commodity data monitor Platts noted record prices for March LNG deliveries at US$20.125 per million British thermal unit, driven by strong demand from Japan, Korea and China – the world’s top three LNG importers. This is a trend likely to continue over the long-term as demand for cleaner burning energy continues to rise.

Domestically, there is ever increasing talk of rising natural gas prices as supply contracts approach expiry, but limited new production available to fill demand going forward as new discoveries are earmarked for LNG processing to then export.

Some estimates suggest the price for natural gas could quadruple from the current price of $3-$4 per gigajoule to $12 or more if Queensland’s huge LNG projects, including Origin Energy Limited’s (ASX: ORG) APLNG, and projects run by Santos Limited GLNG (ASX: STO) run short of supply.

These demand drivers will likely add significant value to energy companies, including Beach Energy Limited (ASX: BPT), Senex Energy Limited (ASX: SXY) and Drillsearch Limited (ASX: DLS), because of the potential for higher returns as both production and gas prices grow.

All three companies have operations in the highly prospective Cooper Basin region and have been making strong progress towards growth over the last 12 months.

Beach Energy saw revenues rocket 63% for its recent half year result, while Senex posted a record revenue result and a 26% rise in gross profit. These results were supported by oil sales, but the cash flows will help to fund gas exploration and development going forward.

All three also appear attractively priced given their growth profiles and strong operating margins. Beach Energy and Drillsearch trade at a PE ratio of just 8.

Foolish takeaway

Supported by rising prices the strong demand trends for LNG and natural gas simultaneously adds to the potential up-side of energy companies, while reducing risk. With attractive valuations and strong long-term prospects these gas stocks look like a bargain.

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Motley Fool contributor Regan Pearson owns shares in Senex Energy.

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