A Roller Coaster Ride

Who doesn’t like roller coasters? I must admit I am a roller coaster junkie. I have been known to drag my family on Expedition Everest in Animal Kingdom at Disney World five times in a row sitting in the first car. What an adrenaline rush! However, I do not like my life on a roller coaster. Smooth sailing is the way I like to go.

Currently the energy industry is on a roller coaster with natural gas prices dropping like a lead balloon. The main listed reason is warmer winter temperatures and sufficient European stock of natural gas. Colorado is living in a totally different dimension since some of the coldest temperatures on record have been recorded this winter. Wind chill has been as low as -20F on the front range and even lower in other parts of the state. One of the ski resorts, Steamboat Resort, has already lengthened their ski season due to the large quantity of snow. As of February 22nd, they are reporting a 72” base and 344” for the season. Wolf Creek Pass area is expecting up to 43″ of snow in the next few days. Meanwhile Tennessee’s Ober Mountain and Indiana’s Paoli Peaks closed on February 22nd for the year due to the lack of snow. As of the 16th Paoli Peaks had just 13” of snow with a 6” base.  Ober Mountain stated they had a 10-20” base. What a difference one part of the country has over another.

Due to the dropping of the natural gas prices many drillers are expected to move their rigs from gas basins to oil plays. The August 2022 NYMEX contract price reached $9.30/MMBTU. At the end of January after the contract expired, the price decreased to $3.11/MMBTU. Since some US natural gas producers did not bank on the roller coaster drop, they are now taking a loss. Prices have fallen nearly 300% in the last six months; therefore, producers now need to sell below the breakeven point. This will affect first quarter earnings and drilling plans.

Europe may have a stockpile of natural gas, but Asia does not have enough of a demand to cause a shortage.  

Texas is capitalizing on oil exports in record number due to the war in Europe and the Russian sanctions. Per the WSJ the Gulf Coast now sets global market pricing for oil with exports surging.

The biggest problem aside from the roller coaster price drops is the financing. Barclays has just joined NatWest, Credit Agricole and HSBC by cutting back or ending fossil fuel financing. Environmental groups are putting pressure on financial institutions to halt all funding of energy projects. These are the same groups that are onboard with the ESG (environmental sustainability goals) index. ESG is wind, earth and fire, and it sounds like a 1960’s band. The band is still playing, but I hope the ESG index does not have the same longevity.

Oil and gas pricing is like a roller coaster, but what goes up must come down! Supply and demand drive the coaster. Currently gas supply is higher than demand resulting in lower natural gas prices. Demand for oil is high and driving the price upward. Will this change in the near future or does the roaster coaster last forever?

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