LT Outlook for U.S. Natural Gas is bullish
Posted: Thu Sep 07, 2023 1:46 pm
Note from Adam Rozencwajg:
Natural gas staged a massive rebound in the second quarter, advancing 26%. European gas, still influenced by swollen inventories related to last winter’s record warmth, fell by 26%. Asian gas also continued its retreat—falling 5%.
With the restart of the Freeport LNG export facility, US inventories have begun to decline versus historical averages, even in the face of highly cool weather at the beginning of the 2023 air conditioning season. Adjusted for population, cooling degree days were 33% below average for May and June. < If you live in Texas (where it has been hot as hell for two month) this fact might surprise you: 75% of the U.S. has had a cooler summer than normal.
US natural gas inventories peaked relative to ten-year averages in mid-March, just before the Freeport facility returned to service, and now sit only 6% above ten-year averages. We remain incredibly bullish on natural gas prices. The Natural Gas section of the letter discusses the rollover in Marcellus natural gas production and how the 40% plunge in the Haynesville rig count over the last six months will severely impact its output in the next six months. In the next eighteen months, we will add close to 6 bcf per day in LNG export capacity, and our modeling continues to suggest that US natural gas supply will begin a prolonged contraction starting now.
Convergence of US natural gas prices-presently at $2.50 per MMBtu with international prices—presently at $12mmbtu—is practically unavoidable given our modeling of both US natural gas demand and supply. Much of the turmoil in global gas markets, weather-related over the last twelve months, has given investors another extremely opportunistic chance to invest in North American natural gas markets.
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MY TAKE: I remain "concerned" about natural gas prices during the winter of 2023/2024 because we will begin the winter heating season with a lot more gas in storage than we had a year ago. What we saw in Q1 2023 was what happens when the utilities that bring gas to your home believe they have enough gas in storage to supply gas to all of their customers. They pull out of the futures market and the paper traders get stuck with too many long contracts. More sellers than buyers caused gas prices to plunge early in 2023 and they remain below a reasonable fair price for clean burning natural gas. If the paper traders have learned their lesson (unlikely) and we have a cold start to winter, we should see HH ngas move and stay over $3.00. I agree 100% with Adam that a year from now the U.S. ngas market will get tight and I believe the HH ngas price will drift to 1/10th the price of WTI.
Natural gas staged a massive rebound in the second quarter, advancing 26%. European gas, still influenced by swollen inventories related to last winter’s record warmth, fell by 26%. Asian gas also continued its retreat—falling 5%.
With the restart of the Freeport LNG export facility, US inventories have begun to decline versus historical averages, even in the face of highly cool weather at the beginning of the 2023 air conditioning season. Adjusted for population, cooling degree days were 33% below average for May and June. < If you live in Texas (where it has been hot as hell for two month) this fact might surprise you: 75% of the U.S. has had a cooler summer than normal.
US natural gas inventories peaked relative to ten-year averages in mid-March, just before the Freeport facility returned to service, and now sit only 6% above ten-year averages. We remain incredibly bullish on natural gas prices. The Natural Gas section of the letter discusses the rollover in Marcellus natural gas production and how the 40% plunge in the Haynesville rig count over the last six months will severely impact its output in the next six months. In the next eighteen months, we will add close to 6 bcf per day in LNG export capacity, and our modeling continues to suggest that US natural gas supply will begin a prolonged contraction starting now.
Convergence of US natural gas prices-presently at $2.50 per MMBtu with international prices—presently at $12mmbtu—is practically unavoidable given our modeling of both US natural gas demand and supply. Much of the turmoil in global gas markets, weather-related over the last twelve months, has given investors another extremely opportunistic chance to invest in North American natural gas markets.
-------------------------------
MY TAKE: I remain "concerned" about natural gas prices during the winter of 2023/2024 because we will begin the winter heating season with a lot more gas in storage than we had a year ago. What we saw in Q1 2023 was what happens when the utilities that bring gas to your home believe they have enough gas in storage to supply gas to all of their customers. They pull out of the futures market and the paper traders get stuck with too many long contracts. More sellers than buyers caused gas prices to plunge early in 2023 and they remain below a reasonable fair price for clean burning natural gas. If the paper traders have learned their lesson (unlikely) and we have a cold start to winter, we should see HH ngas move and stay over $3.00. I agree 100% with Adam that a year from now the U.S. ngas market will get tight and I believe the HH ngas price will drift to 1/10th the price of WTI.