Looming Natgas Bull market

A strong case has been made for a long term bull market in natural gas. See the research piece On LNG, AI, and Shale Supply – We Believe the Turn in North American Natural Gas is Here.

Summary here:

  1. Based on energy content, NG is trading at a massive discount to oil. Specifically, even though the amount of energy in a barrel of oil is 6-times the amount in an mcf of NG, in the US a barrel of oil currently is priced at around 35-times an mcf of NG. In other words, based on energy content NG is 5-6 times cheaper than it should be relative to oil.

  2. Production from shale fields follows the same pattern identified by Hubbert for conventional oil fields, in that production tends to peak when 50% of the reserves have been depleted.

  3. There has been huge growth in the production of NG from US shale basins since 2012, but production in some shale basins is now declining and there is evidence that production in the most important basins has reached its peak. There is also evidence that productivity is on the decline. The implication is that NG production growth from the US shale basins is in the past. In fact, production is likely to fall over the next few years.

  4. The rolling-over of production in the US shale patch will coincide with a substantial increase in the amount of LNG that gets exported from the US as new LNG export facilities come on line. Exports of NG are expected to increase by 9 BCF/d (billion cubic feet per day) over the next 3 years due to these new LNG facilities, boosting total exports of LNG from around 12 BCF/d to more than 20 BCF/d.

  5. The rolling-over of NG production also will coincide with strong growth in the demand for NG associated with the building of AI-related datacentres. This is because over the next few years only new NG-fuelled power stations will be able to provide both the quantity and quality of electrical power required by these datacentres at an acceptable environmental cost.

Natgas producers in my ThinkorSwim watchlist:

http://tos.mx/!GM0Os5qG

  • LNG: Cheniere Energy Inc
  • CHK: Chesapeake Energy Co
  • TRMLF: Tourmaline Oil Corp
  • DVN: Devon Energy Corp
  • RRC: Range Resources Corp