Energy Prospectus

US RESEARCH PUBLISHED BY RAYMOND JAMES & ASSOCIATES
May 9, 2022

Energy Stat: Dramatic U.S. Natural Gas Price Rally Isn't Done - Look Out for $9

Last fall, the spike in international prices made natural gas relevant to the mainstream media for the first time in years – and this was, unfortunately, followed up by more hydrocarbon market disruptions after the crisis in Ukraine. Here in the U.S., Henry Hub prices have posted big percentage gains too — now above ~$8/MMBtu for the first time in years. We've been one of the leading voices regarding the bull case for U.S. natural gas prices ...but we certainly didn’t anticipate how quickly and dramatically the price action has developed.

Today’s Stat addresses: 1) what has been causing U.S. prices to shoot higher; 2) where we think domestic inventories and prices will shake out in 2022-23; and 3) which stocks to play for the natural gas theme.

Spoiler alert: our big call today is that U.S. natural gas prices need to stay at ~$8/MMBtu levels through 2023 – more than ~40% upside to the strip.

We sound like a broken record: even after the recent euphoria, there’s still upside in 2023. This is the same refrain we had for much of 2021 when speaking about 2022 – the upside isn’t quite over yet. While rapidly rising oil prices dominated 1Q22 headlines, 2Q22 thus far belongs to natural gas. YTD front-month Henry Hub natural gas prices have surged ~120%, with 2022 futures now sitting firmly above $8/MMBtu. Over the past 10 days alone, U.S. natural gas prices have jumped ~20%, sporting fresh 14-year highs. As shown in the line graph on the top of page two, U.S. pricing landed well ahead of even our previously above-Street forecast in 1Q22 and are again off to a hot start this quarter.

Today we’re marking-to-market Henry Hub natural gas average prices YTD and cleaning up our forecast. This is one of the largest price deck revisions we’ve ever done! In all, we are calling for a touch more upside, to average above $9 for the balance of this year AND to maintain an ~$8 average for 2023.

Bottom line: U.S. natural gas prices need to stay at elevated levels to keep the market from getting even further off-kilter in 2023.
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MY TAKE: The JUN22 NYMEX contract for HH natural gas dipped below $8.00 this morning and I expect the price of gas to be volatile all year. If the storage deficit to the 5-year average grows in May (my prediction) then I think the Bidding War will shift into a higher gear in Q3. A hot summer (more demand for power generation) could push the NOV22 to FEB23 NYMEX contracts over $10.00.

Global demand for LNG is what is driving this "Structural Change" in the U.S. gas price.

LNG market growth enormous. Odessa American.
Liquefied natural gas exports are a relatively new thing in the American energy industry and they are a very big thing that’s getting bigger by the day. Now that nation after nation is shunning Russia as a supplier, the world is crying for the United States, Qatar, Australia, Malaysia and other countries to make up the difference. The LNG scenario is a complex and extremely high-dollar one, but natural gas is selling for five times its U.S. price in the key markets of India, China, South Korea, Japan and the European Union. Dustin Meyer, vice president of natural gas markets for the American Petroleum Institute, and Texas Independent Producers & Royalty Owners Association President Ed Longanecker say American LNG exporters are selling all they can ship.

Without American LNG, the fight against Russia would have been much, much worse. OILMAN Magazine.. Opinion.
This year, Russia invaded Ukraine, threatening not just the sovereignty of European nations, but also the world energy market. When America, along with our allies and trade partners, rightfully sanctioned Russia, refusing to fill Moscow’s coffers, the global energy market was impacted. American LNG has served as a tourniquet, staunching the possibly devastating economic impact of removing one of the world’s largest energy producers from the world stage. Energy expert and author Daniel Yergin, in a recent interview, best summed up America’s energy position like this: “Today, we [the United States] are basically self-sufficient, if you look on a net basis. And we’re the world’s largest oil producer. And this was unthinkable a decade and a half ago.”