Stifel's take on LNG Demand - April 26

[dan_s]

Energy Infrastructure - LNG Update:
It's The Glory Days Of LNG, But It Is Still Not the YMCA, There Are Winners and Losers - Benjamin J. Nolan

With Russia invading Ukraine, Europe has collectively decided that they are not interested in buying any Russian fossil fuels by 2027 and will work to reduce consumption of Russian energy by 2/3 in 2022. As a result, 155 bcm/day of natural gas will need to be replaced. That translates into ~100 mtpa of incremental LNG consumption, which is simply too much, too quickly for an industry that produces ~400 mtpa. However, even a portion of that will increase demand materially, although more price sensitive markets may be squeezed out. As a result, the forward curve for LNG prices is likely to stay elevated through 2025-26, and there is a significant push to increase LNG production. While most players benefit and equities of incumbent suppliers and manufacturers still have potential for upside, we do think equities of start-ups are overextended and assuming too great a probability of success.
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MY TAKE: There has been a "Structural Change" in the U.S. natural gas market. Global gas prices will have a more significant impact on U.S. gas prices going forward. I am using ngas prices of $6.00 for 2022 and $5.00 for 2023 in my forecast models. Those prices are already looking too conservative.

[dan_s]

At the current price of coal, it will take a natural gas price over $7/MMBtu before any utilities will switch from natural gas to coal for power generating. Plus, coal inventories are way down.