We Will See Cheap Natural Gas

We Will See Cheap Natural Gas for a While and That’s Good News.

The U.S. Energy Information Administration (EIA) headline this week read: U.S. Henry Hub natural gas prices in 2023 were the lowest since mid-2020. You can see what they mean in the chart below:

It is not going to change in 2024. The volume of gas in storage, going into this winter, is well above the five-year maximum. It hit 3.48 trillion cubic feet on December 29th, a year ago it was 2.92 trillion cubic feet. The five-year average is 3.08 trillion cubic feet in storage.

That’s because natural gas production skyrocketed in the past decade. The latest daily production data (from October 2023) is 56% higher than the same time a decade ago. It’s the largest volume of gas production in U.S. history. 

That massive supply is the reason the price fell again. That’s actually great news for the environment. 

We need to take a quick step back to understand why. Electric power can be separated into two types: base load and peak load. Base load power is what’s always on, so you can turn on your lights at 3 am and the air conditioner works all day. Peak load power is the extra bump you need when everyone comes home from work at the same time, turns up the heat, turns on the oven, and runs a load of laundry. 

Base load power was the province of “king coal” and nuclear power for decades. The utilities just kept feeding the big coal-fired power plants 24/7. It was an ideal, if dirty, solution to the burgeoning demand for power in the last five plus decades. 

But we can now produce both peak load and base load power with natural gas. And that’s great news. Because we need the ability to turn on peak load power when the alternative sources like solar and wind aren’t producing power. 

Cheap natural gas helped push out coal as a fuel for electricity. It’s the reason that in 2024, renewable energy will supply more electricity than coal for the first time ever. 

Even though natural gas is a fossil fuel, it’s still world’s better than coal. The methane molecule (CH4) is a worse greenhouse gas than carbon dioxide. When we burn it, we turn it into two water molecules and one carbon dioxide molecule. That’s progress.

However, don’t look to natural gas for a big price bump. There is a lot of the stuff in the ground and the shale revolution unlocked the key. In addition, nearly every new oil well comes with its own slug of natural gas. 

The best way to play natural gas is for the dividends. The big natural gas producers like Chesapeake Energy (NYSE: CHK), EQT Corporation (NYSE: EQT), EOG Resources (NYSE: EOG) will continue to produce natural gas for years. When natural gas prices are low, these companies’ shares will fall as well. Buy them then to lock in a solid dividend and forget you own them. 

Good Investing,

The Mangrove Investor Team

Numbers You Need to Know

36,353,023 MMcf

U.S. production of natural gas in 2022 was 36,353,023 million cubic feet. (U.S. Energy Information Administration)

500 BC

The first natural gas pipes were created from bamboo by the Chinese in 500 BC to boil boil saltwater in order to make salt brine. (NaturalGas.org)

Zero

Because natural gas is colorless, odorless, and tasteless, natural gas companies add mercaptan to natural gas to give it a distinct and unpleasant odor, which helps people detect leaks in natural gas pipelines. Mercaptan is a harmless chemical that smells like rotten eggs. (U.S. Energy Information Administration)

What’s New in Sustainable Investing

Sustainable investments secretly had a great year

Given the poor performance of green energy stocks and the chorus of opposition against anything viewed as “woke,” it’s easy to get lost in the narrative that the shine has worn off sustainable investing. (Corporate Knights)

Investing in Nature Is Gaining Traction. Will It Be Enough?

Investing in nature to address climate change, support biodiversity, and protect ocean health—and more—is expected to reach record levels this year in response to more regulation and market demand, according to Cambridge Associates, a global investment firm. (Barrons)

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