It’s time to care about natural gas, for maybe the first time ever
There’s a very common trope that folks bag-holding energy stocks like to cling to – something like “you can’t make anything in the world happen without energy”. We usually tell ourselves something like this as we watch the QQQ reach all-time highs while the WTI crude quote ambivalently bobs between a $50- & $60-handle. Of course, this is simply weapons-grade cope manufactured and perpetuated by the very people that have dedicated their lives to producing oil and gas.
Unfortunately, having dedicated my own life to the energy sector, I fall squarely into this delusional category – thus I have the pleasure of explaining the key parts of the natural gas market to you over the next 20 minutes, and my firm’s view on how gas and power markets should interact with new LNG and AI demand. In effect, I’m here to say the 3 words that can ruin a man’s life if said prematurely – “this time’s different”.
The natural gas and power markets have been fairly unexciting for years. Among industry specialists, the upstream outlook tends to bifurcate into extremes – those who think there’s unlimited natural gas and prices can never go up, and those who believe prices will only go up. It’s hard to look at historical data and be optimistic about the gas market, knowing how much E&Ps love to grow.
For the past decade, price-insensitive gas growth has dominated North American supply. In the early shale era, companies grew quickly to capture market share; then, effectively $0-breakeven associated gas from the Permian Basin compounded downward pricing pressure. This barrage of supply made the last 10 years miserable for gas E&Ps, but great for consumers.
Today, both the Permian Basin and the dry gas E&Ps (the two largest US supply buckets) have matured and, on a go-forward basis, very much do care about economics. The US has churned through almost all of its low-cost inventory, and despite that, domestic demand growth from data centers and LNG exports is re-accelerating in the face of declining price-insensitive supply.