Keith Kohl's take on U.S. natural gas prices - Oct 10

[dan_s]

Did Hurricane Milton Turn Natural Gas Stocks Into a Screaming Buy?
Keith Kohl | Oct 10, 2024

You don’t often hear much about natural gas these days.

There’s a reason for that. Natural gas stocks are often overshadowed by other sources that garner much more media attention.

Between the bitter back and forth among oil bulls and bears, as well as the effusive exuberance over renewable sources like wind and solar, there’s simply not much room in today’s headlines for natural gas.

Go ahead and look around, I’ll wait.

When you come back, my money is that you’ve scrolled through dozens of media stories regarding the geopolitical mess that is keeping crude prices elevated; I’m guilty of succumbing to those distractions, too.

The reason is because for the past 20 years, our oil, gas and NGL production growth has been nothing short of remarkable.

And mark my words: It would be a mistake to ignore the buy signals right now.

The shale gas boom that started in 2005 has been one of the most influential events in American energy — go ahead and take a look for yourself:

The reason why natural gas stocks have been relegated to the back corner in investor’s minds is because of massive oversupply in the U.S. The supply glut that has permeated the market has put intense downward pressure on prices over the past decade.

However, I’m not as optimistic over our natural gas supply as the market seems to be.

Why? Two reasons.

First, the amount of associated gas — natural gas produced from predominantly oil wells — has tripled between 2018 and 2023 as our domestic crude output climbed higher. Associated gas production from oil wells is nearly 14 billion cubic feet per day.

With U.S. oil output essentially flat in 2024 around 13.2 million barrels per day, we can’t possibly expect similar growth going forward.

Now throw in the fact that U.S. drilling activity has been declining for a long time. The latest Baker Hughes rig count put the current number of rigs drilling for natural gas at 112 — 48 fewer rigs than there were a year ago.

And then there’s another side of this equation that a lot of investors tend to dismiss as well…

You see, we have a tendency to take our natural gas industry for granted. It accounted for 36% of the United States’ primary energy consumption last year, just barely below petroleum.

It’s our single largest source for electricity and plays a crucial role in generating baseload power for our grids.

To give you an idea of just how much natural gas we use, last year we consumed a staggering 32.6 quadrillion cubic feet of it!

That hunger for more natural gas won’t be satiated anytime soon. In fact, our natural gas-fired electricity generation reached a new all-time high this summer.

Now we come to Hurricane Milton.

Although we don’t know the extent yet to the massive damage it’s caused, these kinds of storms tend to cause sharp demand destruction. We’re looking at high volumes of power outages as sustained winds around 160 mph smashes its way on land.

Between Hurricanes Milton and Helene, natural gas prices have crashed hard over the last week, opening up an interesting buy opportunity for investors.

Stay tuned.

Until next time,
Keith Kohl

MY TAKE:
> Surprised he didn't mention the increased demand for LNG exports.
> Power demand coming from AI data centers will also increase natural gas demand.
> Lack of pipeline access will limit supply growth.
> We are one normal winter away from $4.00 natural gas six months from now.