Zacks

Zacks Industry Outlook Highlights Atmos Energy, UGI, MDU Resources and New Jersey Resources

Zacks Equity Research
9 min read

In This Article:

For Immediate Release

Chicago, IL – October 17, 2024 – Today, Zacks Equity Research discusses Atmos Energy Corp. ATO, UGI Corp. UGI, MDU Resources Group MDU and New Jersey Resources NJR.

Industry: Gas Utility

Link: https://www.zacks.com/commentary/2351590/4-gas-distribution-stocks-to-watch-from-a-muted-industry

Natural gas distribution companies offer services to transport natural gas from the region of production to millions of consumers across the United States. The utilities under the Zacks Utility Gas Distribution industry control miles of underground pipeline network to provide natural gas services to customers. The rising demand for clean, burning natural gas will create more opportunities for natural gas distribution companies.

Atmos Energy Corp., with its widespread transmission and distribution lines, interstate pipelines, and significant investments in infrastructure development projects, is poised to benefit as natural gas production volumes are expected to increase in 2024-2025. Steady investments and expanding infrastructure in crucial production regions should drive the performance of UGI Corp., MDU Resources Group and New Jersey Resources.

About the Industry

The shale revolution has substantially increased natural gas production. Its clean-burning nature has steadily boosted the demand for natural gas from all customer groups. Natural gas distribution pipelines are vital in delivering natural gas from intrastate and interstate transmission pipelines to consumers through small-diameter pipelines.

The United States has 3,353 trillion cubic feet of natural gas, and a natural gas pipeline network of 2.6 million miles is utilized to distribute gas to customers. Major concerns for the industry are aging infrastructure and rising investment costs required to upgrade and maintain the vast network of pipelines due to the hike in interest rates. Competition from other clean energy sources can lower the demand for natural gas and, consequently, for pipelines.

3 Factors Shaping the Future of the Gas Distribution Industry

Interest Rate Decline is a Tailwind: To maintain, upgrade, and expand operations, utilities approach capital markets for loans. Multiple rate hikes by the Federal Reserve took the benchmark rate to the 5.25-5.50% range, adversely impacting utility operators. The U.S. Federal Reserve has finally lowered the benchmark rate by 50 basis points, bringing down rates to a range of 4.75-5%.

The rates were lowered for the first time in four years. Capital-intensive domestic-focused utilities will benefit from the Fed's decision to reduce interest rates. The drop in interest rates is a big positive for utility operators planning large investments in infrastructure upgrades.

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