Feb 7, 2023·edited Feb 7, 2023

The main differential is between north america natural gas and international spot LNG cargos, NA natugas is constrained by infrastructure and my gut feeling is that the massive recent ramp up in production was in anticipation of export markets in the EU, who cut off all piped gas from Russia. Capex decisions will probably stay for another year or so, because there's completions in LNG facilities in 2024/2025 I think? So currently the NA market for natgas is constrained than crude oil. To really see if it's rolled over we would have to see what happens when all the LNG facilities in the US south have been completed and see where the price settles. If LNG realizations for NA gas producers hit >8$/mmbtu then they can make a ton of money long term. Normally a company like RRC who sells into spot would tank as natural gas prices collapsed, but the equity is holding up. My 2c is that the equity is still holding on in the expectations of the LNG terminals being finished construction like above.

Overproduction, a warm winter, and the freeport LNG shutdown really crushed natural gas prices. the latter 2 couldn't really be predicted.


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Hi Russell, thanks for the update. I'm not an expert in the energy futures market, what are the main players in long dated futures? Do producers hedge that far ahead or is it mainly speculators?

I get your point overall, something to watch. I tend to think this is likely a correction after an upside move that was a bit overdone (especially at the front end). Also I've read recently that European industrials were hesitant about signing long-term contracts because of the lack of visibility on how natural gas will be treated within the EU green policy framework... maybe if that gets resolved that would support long-term prices? Given price differentials, it seems to make a lot of sense to keep building LNG export facilities to sell to Europe and Asia. In which case increased US production wouldn't necessarily destroy prices (up to a point). But that's a high level view, I'm not an industry expert.

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Shale drillers are doing for US foreign policy what the US military tried and failed.

Looking forward to your model portfolio post Russell!

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what about oil?

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