The Next Four Years Will Be All About Natural Gas
Alex Kimani

Earlier in the year, energy analytics firm Wood Mackenzie predicted that a second Trump presidency could place a huge part of renewable energy investments at risk, increase carbon emissions by 1 billion tonnes more by 2050 and delay peak fossil fuel demand by 10 years beyond current forecasts. Not surprisingly, WoodMac expects the fossil fuel sector to benefit from Trump: the analysts have predicted that less spending on low carbon energy could boost demand for natural gas by 6% or 6B cf/day by 2030.

And now commodity analysts at Standard Chartered have concurred with that opinion. StanChart notes that following Scott Bessent’s recent nomination as Treasury Secretary, his Manhattan Institute June session where he spoke at a conference entitled ‘Towards a New Supply-Side: The Future of Free Enterprise in the United States’ is being scrutinised as a potential guide to policy. During that talk, Bessent was asked which version of the late Shinzo Abe’s three arrows economic plan he would recommend to an incoming President Trump.

A keen admirer of Abe, Bessent put forward the three targets of 3% economic growth, cutting the budget deficit by 3% of GDP by the end of the administration and “Three million more oil barrels equivalent a day from U.S. energy production”. StanChart points out that many commentators are [incorrectly] interpreting Bessent’s comments to mean he would urge the Trump administration to raise U.S. crude oil production by 3 million barrels per day (mb/d), good for a huge 30% to about 16.5mb/d by 2028. The analysts say that Bessent meant the addition of 3 million per barrels of oil equivalent (mboe/d) to U.S. energy production by 2028, an objective well within the means of U.S. producers.

StanChart points out that U.S. oil and gas output is currently ~40.7mboe/d. U.S. oil and gas output has grown by an average of about 123 kboe/d per month since 2015, meaning adding 3 mboe/d would take less than 25 months. The commodity experts have noted that 41% of the post-2015 increase has come from natural gas, 28% from natural gas liquids (NGLs) and just 28% from crude oil. StanChart has predicted that the crude oil element of the next 3 mboe/d increase is likely to be significantly less than 20%, with natural gas likely to be the main instrument for meeting the new administration’s energy goals as crude oil output growth becomes increasingly difficult.

WoodMac and StanChart are not the only natural gas bulls. 

Last week, Morgan Stanley predicted that the U.S. natural gas market is poised to enter a new cycle of demand growth thanks to surging LNG exports and rising electricity demand. Over the past few years, dozens of pundits and industry experts have predicted that the ongoing Fourth Industrial Revolution will drive unprecedented electricity demand growth in the United States and globally. Last year,  the power sector consulting firm Grid Strategies published a report titled “The Era of Flat Power Demand is Over,” which pointed out that United States grid planners—utilities and regional transmission operators (RTOs)—had nearly doubled growth projections in their five-year demand forecasts. For the first time in decades, demand for electricity in the U.S. is projected to grow by as much as 15% over the next decade driven by the Artificial Intelligence (AI), clean energy manufacturing and cryptocurrencies boom.

Meanwhile, StanChart says oil market fundamentals would support an unwind of some OPEC+ cuts, but market sentiment justifies a pause.

Earlier, StanChart predicted that actions by OPEC+ are likely to determine the near-and mid-term oil price trajectory. According to StanChart, much of the negative sentiment that has dominated oil markets over the past three months can be chalked up to misapprehensions about the tapering mechanism for the voluntary cuts made by eight OPEC+ countries. 

Many traders are worried that the balance of oil demand growth and non-OPEC+ supply growth might not offset the scale of restored OPEC+output, leaving oil markets oversupplied. However, the experts have pointed out that this assumption flies in the face of continued reassurances from OPEC+ members that the tapering would be fully dependent on market conditions rather than being automatic. 

Trader focus has been on the question of how many barrels could be returned before a surplus emerged; however, positioning and price dynamics imply that the answer to that question is zero. In a November 3 press release, OPEC announced that output increases would be postponed by a month until the start of 2025. 

StanChart says the delayed return of more barrels to the market does not necessarily mean that OPEC felt the physical market could not absorb the oil, but rather reflects its awareness that extremely pessimistic 2025 oil balance predictions have viewed the tapering through that lens. StanChart says the latest announcement by OPEC strengthens the case that the pace of tapering will be market-dependent and not automatic as traders fear. 

By Alex Kimani for Oilprice.com

 

 

 

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

 

 

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