Energy Prospectus

MY TAKE on the U.S. natural gas market:
> Miss La Nina's winter has wiped out the surplus we had in storage. BTW she has also significantly reduced the FEAR of Global Warming.
> The likelihood of a "Bidding War" for Ngas supply (like we saw in August 2022) has gone from "possible" to "probable". Based on what the NYMEX strip prices are doing, it may be a steady price increase instead of a price spike in Q3.
> LNG exports will continue to increase. They are not seasonal, like space heating demand.
> I do think we will see HH gas prices over $4.00 very soon.
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Comments below are from Raymond James Energy Sector Team.

While the significant growth in expected power demand from AI data centers has been the emphasis of natural gas markets over the past year, it is important to remember that the largest fundamental variable for U.S. natural gas demand growth over the next handful of years will actually most likely be increased LNG exports as U.S. liquefaction.

Importantly, we think U.S. LNG exports can roughly double by YE2030. Relatedly, a frequent investor question of late has been if there is likely to be enough global natural gas demand growth to meet said increase in U.S. LNG supply. Further, global LNG trade has been back in the spotlight in recent days as President Trump has reengaged in negotiations with Russia for a ceasefire in Ukraine.

Today’s Energy Stat: 1) refreshes readers on the outlook for U.S. liquefaction capacity; 2) gives more context to potential global gas/LNG demand growth as LNG supply rises; and 3) addresses multiple European natural gas possibilities as U.S./Russia conversations continue. We finish with what this means for LNG equities?

In short, LNG adds flexibility - and the pending U.S. supply increase will give the market as much flexibility as ever. We remain quite confident in the U.S. liquefaction build-out given commercial successes to date and improved permitting - though there will surely be some snags along the way.

While most investors already understand that the key driver for LNG/gas demand globally will be in Asia, the specifics of this are not as well understood. We think of demand as partially structurally linear, and partially price-dependent - spurred by industrial coal-to-gas switching in China (which we alluded to above), as well as increased LNG consumption in South and Southeast Asia from economic growth (which could be in the industrial and residential categories). In other words, the global LNG/gas market will “always” “balance,” but at what price? We think coal still generally sets the upper and lower bounds for demand and price.

Finally, a regular investor question is how the European natural gas market could be impacted by a resolution to the Russia/Ukraine conflict. European inventory overhangs have continued to dissipate and European gas prices have edged even higher. Spreads are as wide as any time other than the massive 2022 Russia/Ukraine price spike. With the European inventory picture looking clearer, investors are jittery around the potential for peace talks to change the landscape quickly.

Note from Keith Kohl this morning with my comments in blue.
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The Energy King has Returned
Keith Kohl | Feb 18, 2025

They can’t say we didn’t warn them. Last November, we talked about that short time frame to get bullish on natural gas.

It was a perfect moment for investors to hop on board and get excited. Gas prices at the Henry Hub had been falling to their lowest point in 27 years, while the world still craved more natural gas by the day.

Of course, the veteran members of our investment community here know full well that all it would take for all hell to break loose was a colder-than-expected winter. < Important to keep in mind that U.S. natural gas prices were too low for too long. 6 mcf of natural gas has the same energy content of 1 barrel of oil. So, at $2.50/mcf you could get the cleanest burning energy source on Earth for the equivalent of $15/bbl of oil. U.S. natural won't get back to 1/6th the price of oil, but I do think 1/10th the price of WTI is reasonable ($7.10/mcf today). Natural gas is trading for $15.64/MMBtu in Europe this morning.

Well, consider the gates of hell have officially opened.

We’re staring at a double-headed bullish case for natural gas, with a perfect storm lining up both at home and abroad.

Although most people were busy wooing their significant other on Valentine’s Day, President Trump issued an Executive Order that went largely ignored among media headlines. In it, he established the National Energy Dominance Council.

The goal was clear: Cut red tape, improve permitting processes, boost production, and bolster the United States’ energy dominance.

It’s about time, too.

Today, I want you to focus on the natural gas side of things. After all, prices at the Henry Hub averaged $4.13 per MMBtu last month. Not only were storage withdrawals higher than average, but the cold snap clearly hit prices hard.

To give you a little perspective on these prices, the EIA’s latest Short-Term Energy Outlook projected that natural gas prices in 2025 would average $3.80 per MMBtu — a 73% year-over-year increase. In 2026, the EIA is expecting natural gas spot prices to climb another 10.5%.

I know, I know… the U.S. is one monster natural gas producer. Why would anyone ever worry about supply concerns?

For that, I want you to consider a few things.

First, keep in mind that despite the drill, baby, drill mentality this administration is embracing, there are far fewer natural gas producing wells out there than you might think. In fact, there hasn’t been this few natural gas wells since 2008, according to the EIA.

Far more important, however, is that the amount of associated gas production — production that comes primarily from oil wells — could hit a wall as growth in U.S. tight oil output plateaus. Remember, we saw a huge increase in oil production in 2023. That year, associated gas production accounted for more than one-third of our natural gas output.

Let me be clear — nobody is expecting that kind of crude oil production growth in 2025.

And yet, our demand for more natural gas will hit a new record this year.

That’s why canceled natural gas pipeline projects are being revived; it’s the reason why this administration is doing whatever it can to make things easier for producers.

It’s also why the anti-natural gas crowd is starting to change their tune. A few days ago, the Governor of New York went against the state’s own green energy laws by approving permits to expand its natural gas pipeline capacity.

Believe me, it’s no coincidence that Indiana’s legislature is now considering a law to designate natural gas as the same as renewable energy sources.

So here we sit, dear reader, on the precipice of another brutal nor’easter that is about to envelop 250 million people with bitterly cold temperatures and bury them in snow.

There goes any shot at a warm February, eh?

I know what you’re thinking, too. If your mind is only now starting to ruminate on how to capitalize from this winter surge, then you’re probably late to the party like the rest of the investment herd.

The time to day trade this bullish momentum may be over… at least, it is for now. Any hopes of taking advantage of natural gas ETFs like the United States Natural Gas Fund (NYSE ARCA: UNG) or even a 2x leveraged ETF like ProShares Ultra Bloomberg Natural Gas ETF (NYSE ARCA: BOIL) carries a bit more risk if you’re looking for an upside from here.

Granted, had you jumped on the natural gas train last fall, you could’ve sat back as America cranked up the heat in 2025 and nearly doubled your money. Live and learn. In fact, you’d probably be looking for your exit as the rest of the market gets its fomo from plummeting temperatures.

But we’ll leave the day trading for others and keep an eye on the long-term, shall we? Because that’s where your head should be when it comes to natural gas. And given the way that the U.S. is finally starting to embrace natural gas on our path to electrification, it only makes sense to look in the right areas of this market.

To us, natural gas remains the sleeper investment of 2025, and over the next few weeks we’ll take a deeper dive into where you’ll find the biggest winners.

Until next time,

Keith Kohl