Natural Gas: Brother can you spare a dime
Posted: Thu Mar 06, 2025 10:31 am
I'm posting this so people can poke holes in my world view - lord knows I've lost enough to retire on over natural gas and I would like to avoid that mistake again. But what if, like a stopped clock, G&R is finally right in their prediction of being at the threshold of plateauing domestic production combined with increased exports that will lead to a global convergence in Nat gas prices.
In contrast to G&R's too early prediction of field exhaustion/supply made constraint, NatGas experienced a very painful boom AND bust cycle where ever increasing BCF's of natural gas were hitting the market from existing fields in the Marcellus and Haynesville, along with a fair amount of new supply from associated gas in the Permian. The round trip of up and down prices was exacerbated by Freeport's Liquifaction facility going off line for 18 months. That was then.
Today, we have a new President who is flooding the zone with activity in what appears to be the implementation of a strategy to remove the $36 trillion dollar debt bullseye off the nation's back through various measures: Cutting expenses through DOGE and RIF (Reductions in Force); Lowering the value of the US Dollar by pressuring China and Japan to strengthen their currencies; and reducing both interest expense and domestic inflation through the projection of both hard and soft power including the use of tariffs, sanctions imposed or lifted (IRAN/Venezuela/Russia), and pressuring OPEC to bring their spare capacity to market now.
To this last point, if we assume a globally balanced oil market today, then the President must be banking on OPEC production increases to significantly lower domestic energy prices. If releasing spare capacity to the market makes political sense for OPEC, the opposite effect can be expected for domestic producers where lower prices act as a disincentive and reduce both output and CapEx. Is/was the target audience for "Drill-baby-drill" foreign producers, and not domestic producers as assumed all along? Further intrigue is why were the Saudis dubbed brokers in the recent US/Russia Ukraine peace discussions are are these elements linked?
If the global and domestic forces as noted above align over the next several months, then shouldn't we expect lower domestic oil production, and by extension lower associated gas supply from the Permian? What if, on the demand side, industrial/residential demand and LNG exports to remain at current levels and where as Dan notes, storage for the US and Europe requires aggressive refill of depleted tanks after our first blessed cold Winter in years.
Do we dare ask if the stars finally aligned for Natural Gas? The point here is that the currently popular President is spending political capital on Energy by taking Executive Action to remove export restrictions on Natural Gas while requesting increases in OPEC oil production that will rug pull domestic associated natural gas supply, at a time when many are speculating that our nation's FRAC fields have peaked. Further, considering Europe's unwillingness for peace with Russia that likely keeps Russian gas from free flowing over the near term time horizon, it's hard to see where new natural gas supply will meet today's demand over the short/intermediate term. Market and political forces are clearly changing the landscape for energy prices this year. So, are we now approaching the jump off point for G&R's predicted global natural price convergence?
PT Barnum said "There's a sucker born every minute", and the immortal Charlie Brown qualifies for this description as someone who earnestly tries but never gets to kick the football. Staying within the world of Charles Schultz's peanuts, and at the risk of following G&R like Sally follow's Linus into the pumpkin patch every Halloween, might this be the October where we get visited by the Great Pumpkin of convergence? Or will Natural gas make suckers of investors by missing the football again, and put the investors out on the street, begging for a handout.
In contrast to G&R's too early prediction of field exhaustion/supply made constraint, NatGas experienced a very painful boom AND bust cycle where ever increasing BCF's of natural gas were hitting the market from existing fields in the Marcellus and Haynesville, along with a fair amount of new supply from associated gas in the Permian. The round trip of up and down prices was exacerbated by Freeport's Liquifaction facility going off line for 18 months. That was then.
Today, we have a new President who is flooding the zone with activity in what appears to be the implementation of a strategy to remove the $36 trillion dollar debt bullseye off the nation's back through various measures: Cutting expenses through DOGE and RIF (Reductions in Force); Lowering the value of the US Dollar by pressuring China and Japan to strengthen their currencies; and reducing both interest expense and domestic inflation through the projection of both hard and soft power including the use of tariffs, sanctions imposed or lifted (IRAN/Venezuela/Russia), and pressuring OPEC to bring their spare capacity to market now.
To this last point, if we assume a globally balanced oil market today, then the President must be banking on OPEC production increases to significantly lower domestic energy prices. If releasing spare capacity to the market makes political sense for OPEC, the opposite effect can be expected for domestic producers where lower prices act as a disincentive and reduce both output and CapEx. Is/was the target audience for "Drill-baby-drill" foreign producers, and not domestic producers as assumed all along? Further intrigue is why were the Saudis dubbed brokers in the recent US/Russia Ukraine peace discussions are are these elements linked?
If the global and domestic forces as noted above align over the next several months, then shouldn't we expect lower domestic oil production, and by extension lower associated gas supply from the Permian? What if, on the demand side, industrial/residential demand and LNG exports to remain at current levels and where as Dan notes, storage for the US and Europe requires aggressive refill of depleted tanks after our first blessed cold Winter in years.
Do we dare ask if the stars finally aligned for Natural Gas? The point here is that the currently popular President is spending political capital on Energy by taking Executive Action to remove export restrictions on Natural Gas while requesting increases in OPEC oil production that will rug pull domestic associated natural gas supply, at a time when many are speculating that our nation's FRAC fields have peaked. Further, considering Europe's unwillingness for peace with Russia that likely keeps Russian gas from free flowing over the near term time horizon, it's hard to see where new natural gas supply will meet today's demand over the short/intermediate term. Market and political forces are clearly changing the landscape for energy prices this year. So, are we now approaching the jump off point for G&R's predicted global natural price convergence?
PT Barnum said "There's a sucker born every minute", and the immortal Charlie Brown qualifies for this description as someone who earnestly tries but never gets to kick the football. Staying within the world of Charles Schultz's peanuts, and at the risk of following G&R like Sally follow's Linus into the pumpkin patch every Halloween, might this be the October where we get visited by the Great Pumpkin of convergence? Or will Natural gas make suckers of investors by missing the football again, and put the investors out on the street, begging for a handout.