What is holding up Natural Gas prices? What goes up must come down, or does it?
While everyone is not shocked that the price of oil is hovering round the $100 mark, even JP Morgan put out the $180 price in an article in Market Insider. Some other key points in that article were the immediate embargo would displace 4 million barrels per day out of the world oil market, and secondly, a slower phase-out of Russian crude would have little effect on prices.
JP Morgan was quoted in Reuters with the following; “Global energy demand will continue rising by 2030, which will necessitate an additional $1.3 trillion in investments in all forms of energy, including oil and gas, to avoid a shortage of energy supply, according to JP Morgan.
“Our main finding is that by 2030, energy demand growth will exceed supply growth by circa 20% based on current trends, primarily driven by emerging economies and their efforts to develop and lift their citizens out of poverty,” JP Morgan’s strategists Marko Kolanovic and Christyan Malek said in the bank’s first annual energy outlook, as carried by Reuters.
Global oil demand is set to grow by 10 percent by the end of this decade, while demand for natural gas is expected to jump by 18 percent, according to the U.S. investment bank.
Just between these two comments and industry insights from JP Morgan are only a few key items in the energy market we are looking at. This also sets a tone for the questions my stake holders are asking. Why are natural gas prices so high when it is a seasonal price commodity?
Well let’s start with the EIA storage numbers. For the supply vs. seasonality, you can see that the supply side of the equation is on track to follow historical patterns. This winter the prices were off the chart due to stable production but increased demand due to electrical generation to support the dip in renewable power generated and longer colder weather season.
As pointed out above, the supply vs. demand curve it supports normal pricing seasonality pricing. The export factor is only supporting the higher prices to a point. That is due to the total export capabilities and the availability of storage near the Gulf LNG export facilities. With the addition of the new LNG trains brought online they can be used for temporary storage.
Do you buy investments in the market when your charts tell you to, or with your heart’s reaction to the news? I have lost money both ways, and in our current geopolitical crisis guessing either way could be costly. This week Scott Sheffield, CEO, Pioneer Natural Resources, stated that even with the higher oil and gas prices they will not increase their CapEx spending past current projections. The reason he gave was the continued commitment from the Biden administration of increased regulations and adherence to his commitment to his stakeholders.
Today as I am writing this blog the market is still calling for a “buy” on natural gas and it is trading at the $6.93 price. The moving averages support the “strong buy”.
The Bottom Line
What yet remains to be seen is the impact of the bi-directional and mix signals from the current administration. First, they tell the world we are here to save them from Putin, and on the next day, they increase regulations and commit to slow walk permitting. Thus, adding years and cost to the process which only increases prices to the consumers at the pump and in anything using energy. Which is just about everything in our society.
The month charts, formulas for supply and demand support the “strong buy” and look to support over the $5.50 price. This is showing my management team that we are on track to support all our financial forecasting on natural gas. With an estimated 50% of our production in natural gas, getting for forecasting model is critical.
As always check with your CPA if alternative investments are good for your portfolio
Please reach out to our team at any time for answers to your questions.
Jay R. Young, CEO, King Operating
ForbesBooks Author of “The Upside of Investing in Oil and Gas"