It is easy to forget how much U.S. energy markets have changed in just the last five years. Supply and demand of energy jockeying ahead at a blistering pace, market prices hanging in the balance. Looking back at this energy race with a mint julep in our hands, we seek to reveal trends for the future we face. The U.S. energy race and the Kentucky Derby may very well be the two greatest races on the planet but only one poses a Genuine Risk to our clients. Today we look to guide you around four turns and down the homestretch to the winner’s circle of The Energy Derby.
Terms of Note
BCF/D: Billion Cubic Feet per Day, common macro usage metric for natural gas.
Natural Gas Production: The amount of natural gas pulled out of the ground in a given day.
Links: Derby Horses and Past Blogs for educational context.
And They’re Off..
For the first ever running of the energy derby we take you back to 2017 when times were simpler. Our blog on Securing Your NYMEX Costs sets the stage for the race.
- Natural Gas Production gets out of the gate as the favorite of the race at 70.5 BCF/D as the shale revolution continues to ramp up.
- The demand for natural gas for electricity averaged a slow start of 26 BCF/D and LNG exportation was just small colt at 2 BCF/D.
- Coal Power, known as Big Brown and Renewable Energy are a mere afterthought in the racing field as one is phasing out and one is too small to notice.
Coming Out of the 1st & 2nd Turn
We’re moving into 2018 now as Trump Era energy policies begin to show and market forces are driving the fundamentals forward faster.
- Coal-fired power uses a quick burst in the opening quarter to set the pace at the front of the pack Affirmed by Trump policies and lower coal prices helping to promote the commodities usage.
- After starting steady out of the gate, Nuclear Energy begins to fade out of the turn due to early retirements losing market share to natural gas.
- Natural Gas Production is showing its’ Winning Colors still holding the lead on the pack after rising nearly 10% in 18 months to keep up with the other contenders.
- LNG Exports and Renewable Energy are still holding good pace towards the back of the pack, but saving ground, rising 50% from 2017 but on relatively low absolute growth.
Flying up the Backstretch
The energy derby looks close down the backstretch of 2019 but the horses are about to be jumbled as we enter the COVID-19 pandemic era of the race. The Pandemic entered the race like a stiff breeze in the face of our horses.
- Electricity demand is looking Real Quiet on the backstretch as businesses shuttered, taking Coal and Nuclear with it.
- LNG Exports asks for speed and gets it, as it moves boldly to the lead at an astounding 8 BCF/D before the pandemic induced a global supply glut forcing prices to new lows and unprofitable export spreads.
- After rising another 12% to 93 BCF/D, Natural Gas Production takes a stumble on the backstretch due to Justified shut-ins of wells to balance the market. Rig counts fell dramatically limiting the ability to grow supply quickly.
- Renewable energy is steady in the middle of the pack as low input fuels aid the growth of solar and wind energy deployment during this time of the race.
DOWN THE STRETCH THEY GO!!!
Our energy loving readers can now rise to their feet as we witness the volatile jockeying of our horses coming down the homestretch in a post-pandemic world.
- Natural Gas Production fell off the lead in early 2022, recovering from the stumble during the pandemic. Early 2022 brought prices soaring as high as Fusaichi Pegasus, in an undersupplied market. Production kicks it back in to gear and gain in 8 BCF/D of growth for the year finishing our race now at 101.7 BCF/D, 35% higher than we started!
- LNG Exports also stumbled out of the pandemic, but recovered to 12.5 BCF/D before the infamous Freeport, TX LNG explosion knocked off 2 BCF/D in June 2022. But now LNG picks up speed down the homestretch and finishes our race at 14.5 BCF/D, a 625% growth from the start!
- Power burn demand recovers from pandemic lows bringing the need for more coal power, the saving of nuclear power, and of course record high natural gas demand for power. Its charging late but may need two extra furlongs to catch the leaders, with record demand expected this summer.
- The oncoming power of renewable energy, charges down the stretch late with new Biden era policies like the Inflation Reduction Act bringing new incentives and subsidies for renewable growth. Will this growth push it to the winner’s circle in the next few years?
The Winners Circle
You can catch your breath now after the PHOTO FINISH in our energy derby.
The reality of the last five years is that Natural Gas Production has been the undisputed, Secretariat-like, champion in the U.S. energy world. Natural Gas Production has risen to meet every major increase in demand. It has fueled the LNG Export craze and fueled Europe and Asia through energy crises. To the demise of shareholders, but to the benefit of end users, rising natural gas production has kept energy prices relatively low on an inflation-adjusted historical scale. Realistically, production could continue to rise for the next five-years to support demand growth.
Renewable energy will help displace natural gas and could experience 2X-4X growth in the next five years. This will fundamentally alter power market prices with new peak times and seasons. The bridge period to figure out the integration on these intermittent resources could bring high prices to the unprepared end user.
Nuclear power will stay steady, and coal power will continue to fall behind with new retirements. These resources are likely underappreciated for the contributions to the grid, but at this time market forces and policies are working against these base load assets.