Energy Prospectus

During our next webinar on June 17 at 11AM CT I plan to explain why I am Super Bullish on natural gas prices.

Here is the first half of the reason from our friend Keith Kohl:

Natural Gas Summer 2025 Outlook Part 1
Keith Kohl | Jun 05, 2025

We all take things for granted.

You, me, everyone around us, and you know what? Most of the time, we don’t even realize we’re doing it, whether we like it or not; only rarely are some people able to step out of the bubble, peer back over their shoulder, and recognize what’s going on — fewer still are able to understand the situation enough to take advantage of it.

This is precisely what’s happened when it came to U.S. energy dominance.

But I’m not even referring to oil today, despite the fact that our domestic crude production hit an all-time high in March.

No, I’m talking about natural gas.

And now it’s time we take a step outside of the bubble and look back to see what’s ahead.

More importantly, it’s time we see the opportunities for what they truly are.

Consumption Junction, What’s Your Function

The veteran members of our investment community know that the most powerful driver for energy prices, be it a cubic foot of natural gas or a barrel of crude oil, are the supply and demand fundamentals taking shape in the market.

So it’s with this in mind that we’ll kick off our outlook for natural gas over the short, medium, and long term. If there’s one truth nobody can deny right now, it’s that our demand for natural gas has been growing strong for almost 40 years!

Our gas consumption started to level off after the year 2000, and even declined through 2008. The reason why is pretty simple, too. Production during that period was relatively flat, and we actually started building a dependence on LNG imports which more than doubled.

Then everything changed as the tight oil and gas boom kicked off around 2008. Within a decade, our natural gas imports were cut by nearly 50% as tight gas output from areas like the Marcellus Shale in Appalachia surged higher.

As you might expect, the higher supply put intense pressure on prices; it was only a matter of time before natural gas at the Henry Hub were trading below $2 per MMBtu.

That ultra-low commodity price environment is what caused gas demand to grow, as well as the death of the coal industry. Yes, strong growth in wind and solar generation helped move us away from coal, but the true culprit has always been cheap and abundant natural gas.

The thing is, our demand for more natural gas will continue rising in 2025 and 2026. In fact, we’re coming off back-to-back record consumption years for gas, primarily driven by our increased thirst for electric power. U.S. electric power demand grew 4% year over year in 2024.

But here’s where it gets a little sticky…

You see, 2023 and 2024 were two record years for heat, and although current forecasts aren’t projecting record-setting temperatures, this summer is still expected to be hotter than average.

In other words, weather will help shape short-term demand for natural gas, and we don’t expect much demand relief as Americans start blowing that A/C to escape the heat — if they haven’t already!

However, the situation grows more bullish over the medium and long term. The EIA’s numbers show that higher demand from U.S. LNG exports will offset the warmer-than-average spring we’ve had so far.

You know as well as I do that U.S. LNG exports have become a critical energy source for EU countries ever since the Russian-Ukrainian war kicked off in 2022.

If you think that countries like Germany want to go back to importing natural gas after any peace is reached, I have some bad news for you. The fact that Putin completely shut out Germany from natural gas pipeline exports is proof that Europe desperately needed to diversify their energy supply.

Looking even further out, further demand strength will come from the rapidly growing power needs to fuel tomorrow’s data centers. President Trump’s $500 billion push for Project Stargate is leading us down a path of massive infrastructure buildouts to support the feverish AI arms race taking place right now.

The future demand from those data centers alone are enough to keep investors bullish, especially considering the fact that natural gas will account for 40% of our electric power demand over the next two years.

Yet this is just one side of the equation, isn’t it?

Tomorrow, we’re going to delve into the supply side of this sector. And here’s a bit of a spoiler: It’s not as rosy as you might think!
----------------------------
Bottomline:
> Demand for U.S. and Canadian natural gas is expected to increase by 12 Bcfpd from YE 2024 to YE 2026, 6.7 Bcfpd from LNG export facilities.
> Demand for power generation is growing and will accelerate after 2026.
> We have massive natural gas reserves, but pipeline capacity and infrastructure for gathering, compression, processing and storage cannot grow fast enough to keep up with ~6 Bcfpd each year.
> So, Demand will exceed Supply, and supply will need to be rationed by price.

Natural Gas Summer 2025 Outlook Part 2
Keith Kohl | Jun 06, 2025

Yesterday, we talked a bit about the strong demand dynamics for natural gas over the next two years. Of course, that’s not to mention the fact that we’re coming off two straight record-setting years for winter and summer demand.

The demand side alone is enough to keep us bullish on prices going forward, and we’re not the only ones that think so.

In the EIA’s latest Short-Term Energy Outlook, it was clear that prices are expected to rise through 2026. EIA’s forecast is for natural gas spot prices at the Henry Hub to nearly double year over year to $4.10 per MMBtu this year, then climb nearly 20% in 2026 to an average of $4.80 per MMBtu. The JAN26 NYMEX futures contract closed at $5.095 on June 6th.

I’ll note one interesting shift in LNG prices has taken place over the last few years. In the past, the primary LNG market on everyone’s radar has been in Asia.

Last winter, however, it was Europe and North America that drove global demand growth, with European gas consumption growing by 10% year over year. As I mentioned before, demand for U.S. LNG will help offset any weakness from milder weather.

So, what could possibly make this situation explosive for prices?

That may come down to the end of our natural gas supply boom.

Look, if there’s one thing that the U.S. energy sector could count on for the last 20 years, it’s higher natural gas production.

Although most people know that the U.S. has experienced a full-blown oil boom, little attention has been given to the vast supply of natural gas that has come on line from tight-rock plays like the Marcellus Shale — more than 35 billion cubic feet of natural gas is extracted from the Appalachian region on a daily basis.

In total, U.S. upstream companies produced 41.4 trillion cubic feet of marketed natural gas in 2024. <113.4 Bcfpd

But here’s the catch…

Our marketed natural gas production has been relatively flat lately! Last year, it grew by around 0.4 Bcf/d compared with 2023. If you take another glance above at the EIA’s price forecast, you’ll see that dirt-cheap natural gas prices have plagued the market over the last two years.

Similar to how low oil prices are about to curtail production growth in the short term, low gas prices have had a similar effect.

However, that’s not the scariest part of this story.

I don’t want you to think that the United States is running out of natural gas because output has flatlined — we’re not. As prices rise over the next two years, we’ll see higher drilling activity as companies look to take advantage of a higher price environment.

The problem is that much of the supply growth we’ve seen in recent years hasn’t been from traditional tight gas plays like the Marcellus. The truth is that most of the growth in our marketed natural gas production came from the Permian Basin region, and here’s the interesting part — it wasn’t from gas wells.

You see, the primary driver for gas production growth in the Permian over the last few years has been in what’s called associated gas. Think of it as the natural gas that comes as a byproduct with oil production. And you know as well as I do that there has been no shortage of oil production growth in the Permian for well over a decade.

This is the dangerous part, dear reader, because we’ve finally hit a tipping point in the Permian Basin where low oil prices are going to start restricting output.

Over the next few months, that associated gas production will dry up as our domestic oil production declines. < Another problem is lack of pipeline capacity and the infrastructure needed to gather, process and storage for large qualities of natural gas. With demand expected to increase by 5 to 6 Bcfpd EACH YEAR it will be difficult for supply to increase that fast.

You can see where this is going, right?

Limiting supply growth now during a period of healthy demand means that a perfect storm is brewing for individual investors like us.

Consumers of natural gas have been spoiled with a supply glut for more than a decade, and it comes at a time when we’ll be relying more and more on natural gas as a secure source of baseload power, which wind and solar simply cannot provide.
----------------------------------
Bottomline: When demand for natural gas exceeds supply, "Price Rationing" is required to drive out the marginal buyers. With Asian and European buyers willing to pay $12/MMBtu today and much more during a cold winter the bids for supply at the front of the NYMEX strip could reach double digits. If you run a 25-year chart of HH natural gas prices you will see that U.S. gas prices topped $13/MMBtu twice during that period. During our June 17th webinar I will explain why the "Right Price" for U.S. natural gas may end up being within the range of $5.00 to $7.00.