Jan

4

European Natural gas - not that far to test 2024 lows, and perhaps even pre-Ukraine-war levels eventually? Peace coming (?) Or general decline in Gas prices (US natty has gone the other direction for a while).

"Price move first - fundamentals later." When something moves (even though I don't trade it - or have expertise in it yet), I often look at it and wonder what it could mean. Mass financial media hasn't picked up on this theme either (much) - another reason to consider what it means…

Carder Dimitroff comments:

For me, this is an important observation. EU-US fundamentals have changed. The current US administration "encouraged" the EU to accept US LNG imports. At the same time, US LNG export capacity has increased. For Europe, the supply-demand dynamics changed. In the next several months, it will continue to change:

• 14.49 Bcfd US LNG export capacity - current.
• 21.81 Bcfd US LNG export capacity - under construction.
• 13.24 Bcfd US LNG export capacity - approved but not under construction.
• 12.49 Bcfd US LNG export capacity - proposed and seeking approval.

Most of this LNG use capacity uses, and will use, Texas/Louisiana natural gas as its feedstock. Feedstock and LNG prices will likely be correlated with Henry Hub prices. If most of this capacity is built, the following trends are likely to emerge:

• US citygate (NG) average prices will float higher.
• US LMP (electric) average prices will float higher.
• US NGL average prices will sink.
• EU NG average NG and LMP prices will stabilize.

More importantly, global LNG markets are changing and will continue to change. Keep in mind:

• Global LNG capacity is expanding
• The US is not the LNG cost leader and never can be.
• As the US dominates EU imports, global markets adjusted accordingly.

Of course, traders should be indifferent about these long-term fundamentals. But long-term investors might consider options.

Stefan Jovanovich asks:

Follow-up question for Carder and others: "What do you think about the Doombird thesis that the Permian drillers and the mid-stream connectors will shift to have natural gas be the hydrocarbon asset that they look to make money from and oil will be the secondary source of income?"

Carder Dimitroff replies:

If the question concerns long-term prospects, global demand for diesel, jet fuel, plastics, and related products is expected to grow. Gasoline consumption may be slowing, but it is not crashing. But who knows where the economy is headed?

For the US, natural gas as a bridging fuel makes sense if it can reach consumers. In the US, domestic delivery is a problem. Globally, LNG delivery is also a problem, but for different reasons. Because they deliver to Henry Hub, producers should be indifferent between the two markets. Beyond Henry, LNG is becoming increasingly accessible, whereas citygates will continue to struggle.

The US is also a net exporter of oil and oil products. Again, the product supports two separate markets.

Most Permian wells produce oil and associated gas (and they are getting gassier). It's not a choice. They get both.

For me, the short-term challenge is global overproduction. Geopolitical considerations rather than economic factors drive the decision to overproduce and erode margins. It will end, and the markets will revert. Until then, it will be difficult for American producers to finance new wells.


Comments

Name

Email

Website

Speak your mind

Archives

Resources & Links

Search