Investor Essentials Daily

This company capitalizing on the global shift in energy supply

April 12, 2024

The 2022 Russian invasion of Ukraine precipitated a global energy crisis, heavily impacting fuel markets due to Western sanctions on Russian oil and gas.

This initially led to a spike in energy prices, though they have since retreated from their peaks as the market adopts a more cautious outlook.

In the U.S., gas prices surged due to facility outages but are declining as demand recovers post-pandemic. Europe’s strong demand for energy, driven by efforts to decrease reliance on Russian imports, presents significant opportunities for U.S. energy companies.

Par Pacific (PARR), with its extensive refining and terminal operations in the U.S. and a strategic focus on acquiring and optimizing niche assets, is well-placed to benefit from these shifts.

The company’s financial performance is closely tied to oil and refined product prices, positioning it for potential growth as global energy demand continues to rise, especially from Europe seeking alternatives to Russian energy.

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The Russian invasion of Ukraine in 2022 triggered a major global energy crisis that continues to reshape international fuel markets.

The invasion led to sanctions on Russian oil and gas exports by Western nations. As a major exporter, this removal of Russian volumes contributed to price surges.

However, the market is now taking a more pessimistic view due to prices falling from their highs in 2022.

Gas prices in the U.S. had jumped as outages occurred at processing facilities. But with demand picking up gradually as the economy recovers post-pandemic, prices are trending down from peaks.

Despite the current price falls, energy demand remains strong especially in Europe as they seek to replace Russian imports.

The EU aims to cut Russian gas imports by two-thirds this year and end its reliance on Russian supplies. This creates a major opportunity for U.S. exporters to fill the gap.

American companies with LNG export facilities and pipelines are well-positioned to meet European needs.

Par Pacific (PARR) owns and operates refineries and terminals across the U.S., including facilities in Hawaii, Washington, Utah, and Montana. It also owns a 46% stake in Laramie Energy, an independent exploration and production company.

In 2023, Par Pacific significantly expanded its refining footprint through the acquisition of the ExxonMobil Billings refinery in Montana. This added 65,000 bpd of refining capacity.

Par Pacific has a strategy of acquiring logistically complex niche assets it believes it can optimize. We can expect future growth opportunities in renewable fuels and energy infrastructure.

The company’s financial performance is highly correlated with movements in crude oil and refined product prices.

When input costs rise, Par Pacific can pass on higher prices to customers. Similarly, in periods of strong fuel demand like summer driving seasons, it benefits from increased margin opportunities.

With demand expected to continue growing over the long term, especially as Europe transitions away from Russian imports, upstream and midstream oil companies like Par Pacific are well positioned.

The recovery seen in refined product demand post-pandemic bodes well for refiners.

If consumption increases further from here, Par Pacific has the potential for significant earnings and stock price upside given its integrated business model.

Best regards,

Joel Litman & Rob Spivey

Chief Investment Strategist &
Director of Research
at Valens Research

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