Last week, a fire broke out at the Freeport natural gas terminal located in Quintana, Texas.
Thankfully, no injuries occurred, and there’s no risk to the surrounding area, either.
But in the wake of this incident, U.S. natural gas prices…
Fell!
This might seem surprising to you.
Wouldn’t a natural gas facility go out of commission cause prices to go up, not down?
Here’s the catch. What went out of commission wasn’t just a regular natural gas facility – it was an LNG export terminal. One of just seven such terminals in the entirety of the U.S.
- With that export terminal out of commission for at least three months, about 1/5th of total U.S. LNG export capacity is gone with it.
Thus leaving about 2 billion cubic feet of gas per day stranded at home.
This is good news for Americans.
That gas being stranded on home soil is the reason why U.S. gas prices pulled back last week.
But for Europe, which has already been seeing higher gas prices in the wake of the war in Ukraine and sanctions on Russia the opposite is true.
Gaslighting: The E.U. Just Can’t Quit Russian Natural Gas
There’s been a lot of strong rhetoric from Europe over the past several months as the situation in Ukraine has dragged on.
Unfortunately, many people say what they’ll do. But not many people do what they say.
In May, Russia cut off its gas supply to any E.U. customers who weren’t willing to pay their bills in the Russian currency, the Ruble.
Poland, Bulgaria, Finland, and the Netherlands have seen their supplies of Russian gas dry up after refusing to bow to Putin’s demands. But plenty of other customers from countries (like Germany, France, Italy, Hungary, Austria, and more) have opened ruble accounts with Gazprombank. Or even negotiated some form of alternative payment scheme.
These new arrangements may comply with the letter of the law when it comes to the E.U.’s sanctions on Russia. But they certainly don’t follow the spirit of the law.
Getting High on the Supply
The E.U. has been happy to impose harsh sanctions on Russian oil and coal.
But they’ve been much more skittish when it comes to Russian gas…
- Russia supplies around 40% of the E.U.’s demand for natural gas.
That’s why the E.U. can’t afford to completely cut Russia off just yet.
They’re simply too important for the E.U. to get aggressive with sanctions on natural gas.
This uncertainty sent natural gas prices rocketing sky-high at the outset of the war.
Though prices have since pulled back to pre-war levels, they still remain very elevated when compared to historical price levels.
Even before the war in Ukraine, low inventory levels, supplier shortfalls, high electricity prices, and a colder winter had all contributed to record highs in natural gas prices.
Russia’s actions only served to further exacerbate a problem that was already there.
Back at Home, Things Aren’t Rosy Either
Keep in mind…
When I mentioned that U.S. natural gas prices fell in the wake of the news about the fire at the export terminal in Texas…
- U.S. natural gas futures prices are still up more than double from the beginning of the year.
The recent pullback didn’t fix the natural gas pricing situation at home – it was more of a brief respite.
We’re not quite at all-time highs for natural gas prices at the Henry Hub, which were set at $15.78 back in 2005. That said, the outlook for natural gas prices remains high.
The U.S. Energy Information Administration expects domestic gas prices to stay about where they are for the foreseeable future, holding around $8.71/MMBtu for the 3rd quarter of 2022.
This would be going into winter, which traditionally sees upticks in natural gas prices due to seasonal heating demands.
Lower inventories, increased foreign exports, and heightened domestic demand as gas-to-coal switching become less and less available are all to blame.
But while this doesn’t sound like great news for consumers, trouble has always ridden hand-in-hand with opportunity.
I’ve been following the natural resource and energy markets for over two decades now.
And although the past few years haven’t been kind to oil and gas companies, the world isn’t ready for them to go the way of the dinosaur just yet, as the E.U. is clearly showing.
Our eyes are on select targets in the energy industry, and I have capital ready to pull the trigger at prices that I like.
If you want to know what moves we’re making…
You can see all of my research on oil and gas and even the exact companies I’m planning to buy in my own portfolio, by clicking here.
Regards,
Marin
