Oil prices are back on the rise after the January options expired and the American Petroleum Institute (API) reported a larger than expected 4.7-million-barrel crude oil drawdown. Yet behind the day-to-day grind of fluctuating prices there is a more concerning backstory of the coming energy crisis that no one in the current administration wants to deal with. In fact they want to make it worse.
Outgoing Energy Secretary Jennifer Granholm says the, “Natural Gas Act has given the U.S. Secretary of Energy the responsibility to evaluate whether authorizations for the export of liquefied natural gas to non-free-trade-agreement countries is consistent with the “public interest.” That determination includes a wide variety of factors including impact on American consumers, workers, and the environment. We have now finalized our update of various pieces of analysis for public comment.
Granholm says that, “I want to take this opportunity to highlight five key findings and considerations that I think are especially relevant to help guide future Secretaries of Energy in making decisions about whether applications are in the public interest. Today’s publication reinforces that a business-as-usual approach is neither sustainable nor advisable. First, the pace of growth of U.S. natural gas exports in recent years is truly astounding and many analysts say continued growth on this trajectory will quickly outpace global demand. By itself, this rapid growth to date – and the continued growth we expect under existing authorizations – recommends a cautious approach going forward. U.S. LNG exports have already tripled over the past five years, will double again by 2030, and could double yet again under existing authorizations. The quantities already approved for export equate to roughly half of the U.S.’s total current natural gas production today. In 4 of 5 modeling scenarios included in today’s study, the amounts that have already been approved will be more than sufficient to meet global demand for U.S. LNG for decades to come.
Second, while these dramatically increasing LNG exports generate wealth for the owners of export facilities and create jobs across the natural gas supply chain, our public interest review requires comprehensive economic analysis. The U.S. Department of Energy’s (DOE) updated study finds that a wide range of domestic consumers of natural gas – from households to farmers to heavy industry – would face higher prices from increased exports. The study put forward today finds that unfettered exports of LNG would increase wholesale domestic natural gas prices by over 30%. Unconstrained exports of LNG would increase costs for the average American household by well over $100 more per year by 2050. We have recently lived through the real-world ripple effects of increased energy prices domestically and globally since the pandemic. Middle and low-income households already face energy bills that are too high. In parts of the South, the export-induced price increase would put some households over the energy burden threshold, further challenging their ability to meet basic needs.
Yet this assessment by Granholm is out of touch with reality and is a jaded view that could lead to real disasters for the US economy and the globe that are already stressing over past energy policies like Granholm is espousing. Not only are we getting another warning from the North America Electric Reliability Corp. (NERC) in their 2024 Long-Term Reliability Assessment that most of the US electric grid faces potential energy shortfalls beginning as early as next year but also a scathing response from the American Gas Association to the Biden administration’s pre-Christmas report on American liquefied natural gas (LNG).
Let’s start with the AGA. In a release the AGA said, “The Biden Administration’s pause on American LNG exports was a mistake that resulted in uncertainty for the market, for investors, and for America’s allies around the world,” said AGA President and CEO Karen Harbert. “This report is a clear and inexplicable attempt to justify their grave policy error. America’s allies are suffering from the weaponization of natural gas and energy deprivation and any limitations on supplying life essential energy is absolutely wrong-headed. We look forward to working with the incoming administration to rectify the glaring issues with this study during the public comment period.
Now back to the report from NERC that said that, “Trends identified in NERC’s 2024 Long-Term Reliability Assessment that warns that over half of the continent is at elevated or high risk of energy shortfalls over the next 5 to 10 years. They warn that generator retirement plans continue over the next 10 years, electricity demand and energy growth are climbing rapidly. New data centers, which have the potential to consume enormous amounts of power and can be built relatively quickly, are driving much of the explosive demand growth. Electrification in various sectors and other large commercial and industrial loads, such as new manufacturing facilities and hydrogen fuel plants, are factoring into higher demand forecasts. In fact, they point out that, “Demand growth is now higher than at any point in the last two decades, and meeting future energy needs in all seasons presents unique challenges in forecasting and planning,”
John Moran of Moran Logistics paints a sober outlook. To put it in perspective how large the shortfall ,John estimates that, “The United States is short the equivalent of 36 nuclear power plants. That estimate has no room for growth or any other actions such as manufacturing being forced to the US through tariffs he’s concerned that we don’t have the capacity to build anywhere near this he said it will take five to seven years perhaps 10 years to build out the capacity for artificial intelligence. On the flip side he’s worried because China is building 437 coal fire plants as we speak yet he warns here in the United states regulatory burdens have put us behind the 8 ball. We are closing coal plants faster than our ability to replace them, and the regulators are putting roadblocks up to increase capacity by approving natural gas or nuclear power plants.
This comes as fears of power shortages across the pond are growing as winter is not being as forgiving as it has been it past years. Bloomberg reports that UK wind power generation reached a fresh record on Tuesday, sending electricity prices plunging below zero. Bloomberg says that wind output peaked at 22,360 megawatts during the evening, breaking the previous high reached just a couple of days.
Which brings us back to the oil market, which grudgingly has been moving higher and closed above some key technical areas. The reluctance to breakthrough the 100-day moving average did cause some selling that was enhanced by option expiration yet the strong rebound into the closed suggests that the market is on guard for a potential breakout to the upside.
Along with the bullish 4.7 draw on crude oil inventories the API also showed the gasoline inventories rose by 2.4 million barrels which might have been slightly higher than some people expected. Distillate only increased by 700.000 barrels.
As always we will wait for the Energy Information Administration report that comes out today at 9:30a central time to confirm this data yet who are we kidding. At the end of the day probably the final piece in the potential run up in oil may be the Federal Reserve decision. Today the Fed will cut rates as expected and if the market doesn’t see them as coming off as too hawkish we probably will start to see some upward movement on the oil price. We think we have a real shot for the mid 70s over the next couple of weeks.
This comes as Iranian oil supplies seemed to be falling ahead of expected sanctions on Iran from the Trump administration and new sanctions from the current Biden administration. Despite Iran’s denials their well imports are falling. Tanker Trackers sees that Iran’s crude oil exports are at 1.2 million barrels per day during the first 15 days of December. The running average of the first 15 days during the three months prior was 1.7 million barrels per day.
There definitely is going to be a positive side to increasing demand for US LNG exports if they can ever get approved. S&P Global Inc (NYSE:SPGI) is suggesting that US LNG exports will support 500,000 jobs a year and add $1.3 trillion to the US gross domestic product.
Getting on the short term there’s still some demand concerns. The latest coming from the Fitch rating agency. Fitch expects the global oil market to be in a surplus in 2025 as demand growth is going to fall below 1,000,000 barrels per day to be exceeded by supply growth of around 2,000,000 barrels a day. Of course, this is not what the Energy Information Administration expects so Fitch is kind of out on a limb here.
Natural gas prices here in the US are getting driven by weather forecasts. Prices are edging back up as the latest weather forecast shows that the US will be colder.
The Fox Weather Channel is reporting that the coldest air of season so far is to invade the US just days before Christmas. Fox Weather says that, “A potent winter storm, packing bone-chilling cold, is sweeping across the northern U.S. this week, bringing some of the season’s most frigid temperatures to the Northeast and mid-Atlantic. The FOX Forecast Center said temperatures would drop sharply on Saturday and Sunday, with highs expected to be nearly 20 degrees below average until early next week. So as those forecasts get colder natural gas goes higher. The key thing to watch other than weather is the gas production response.