Energy News: October 21st, 2024 Hurricanes Helene & Milton an unexpected opportunity to secure Natural Gas and Electric rates before
Energy News: October 21st, 2024
Natural Gasis the largest source of power for the generation of Electricity; therefore, their pricing is highly correlated, which is why we focus on Natural Gas in our reports.
In our Sept 24th Energy Update, we pointed out after writing our April 8th Energy Update that Natural Gas rallied anticipating increased demand during the Summer before declining as we near this year’s Fall Shoulder Period, and we believed Natural Gas and Electricity prices would again rally anticipating increased demand in the Winter.
After writing our Sept 24th Energy Update, as expected, Natural Gas started to rally, but the rally was truncated due to demand destruction caused by hurricanes Helene and Milton.
In today’s report, I will explain why we believe, the decline caused by Hurricanes Helene and Milton is an excellent opportunity to secure Natural Gas and Electricity before rates move higher long-term.
In our May 20th Energy Update, we warned hurricanes could disrupt Natural Gas production that would deplete our supplies, which would lead to higher prices.
But hurricanes Helene and Milton missed our production facilities in the Gulf of Mexico, and their tracks caused catastrophic damage to home and businesses in Florida, Georgia, and North Carolina resulting in demand destruction truncating the rally in anticipation of increased winter demand.
In our last report, we said the short-term pattern of Natural Gas reaching lows during lower demand during Shoulder Periods between the Summer cooling and Winter heating periods was common, but the lows reached during this year’s Shoulder Periods were especially critical because we believe Natural Gas will be higher longer-term after reaching this year’s lows.
We believe this for 2 reasons:
1. As we explained in previous reports, since 2000 when Natural Gas declined to where it is in 2024, it always preceded higher prices long term.
The primary reason Natural Gas was always higher over the long term when it was as low as this year is its prices were unsustainably low. They are unsustainably low when they are below the cost of production, and producers must respond by making strategic decisions to curtail production to support higher prices, which we fully explained would happen this year in our Feb 26th Energy Update.
2. As we explained in our Sept 24th Energy Update, we are concerned prices will not only be higher in 2025 but increased demand for Natural Gas and Electricity will support higher prices longer-term.
In a recent report, the EIA revealed North American liquefied Natural Gas (LNG) export capacity is on track to more than double from 2024 to 2028, going from 11.4 billion cubic feet per day (Bcf/d) in 2024 to 24.4 Bcf/d in 2028, and if projects currently under construction begin operations as planned exporters will have the capacity to supply increasing demand for our LNG overseas.
Also, as we pointed out in our last report, a New York Times article released earlier this year revealed something unusual is happening in America. Electricity Demand, which has stayed largely flat for two decades, has begun to surge.
“Over the past year, electric utilities have nearly doubled their forecasts of how much additional power they’ll need by 2028 as they confront an unexpected explosion in the number of data centers, an abrupt resurgence in manufacturing driven by new federal laws, and millions of electric vehicles being plugged in. Many power companies are already struggling to keep the lights on, especially during extreme weather, and they say the strain on grids will only increase.”
The combination of increased exports of LNG overseas and increased domestic demand will likely support higher prices in the long term, which is why we here at Energy Professionals believe the recent decline in Natural Gas is an unexpected opportunity to secure Natural Gas and Electricity rates before they move higher long-term.
Potential supply/demand imbalances forecasted through 2028 will increase the risk of higher prices, and we recommend anyone with Natural Gas and Electricity agreements expiring through 2025, reserve power long-term to be available when their present agreement expires.
Not every client’s risk tolerance and hedging strategy are the same, but the goal of our reports is to reveal your risk/reward opportunities. We invite you to call one of our energy analysts to help you plan a hedging strategy appropriate for your situation.
Ray Franklin
Energy Professionals
Senior Commodity Analyst
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