Summer heat is the trigger. That much is clear from Tortoise Capital senior portfolio manager Brian Kessens, who laid out the natural gas market’s mechanics on ‘The Claman Countdown.’ Hot weather means air conditioners run. Air conditioners burn electricity.
Much of that electricity comes from natural gas-fired plants. Demand spikes.
Prices follow. This is not new. It is seasonality — a pattern the market has shown before, year after year.
What changes is the magnitude. Some summers are brutal.
Some are mild. The difference dictates whether households feel a pinch or a punch at the thermostat. Kessens pointed to three companies positioned to ride this wave.
Cheniere Energy ships liquefied natural gas overseas. Targa Resources runs pipelines and processing plants. EQT Corp pulls the gas out of the ground.
Each sits at a different point on the chain. Each, he argued, stands to gain if the seasonal dynamic plays out as expected.
Compare this to past seasons. The summer of 2022 saw natural gas prices surge above $9 per million British thermal units. European demand for LNG, driven by the war in Ukraine, pulled supply away from domestic markets.
Cheniere’s export terminals ran near capacity. Prices at the Henry Hub spiked.
Households paid more to cool their homes. The summer of 2023 was different. A milder season, combined with record domestic production, kept prices low.
Storage levels climbed. Spot prices hovered around $2.50. Producers cut back on drilling.
The market rebalanced. Now it is June 2024.
The National Oceanic and Atmospheric Administration has forecast above-average temperatures for much of the country. That forecast is the fuel for Kessens’ argument. If it holds, demand will rise.
If demand rises, prices will follow. The question is how much.
Kessens did not offer a number. He did not predict a specific price. He stuck to the mechanics.
Natural gas demand is not flat. It is seasonal. That is the point.
The comparison to crude oil is instructive. Kessens noted that natural gas prices tend to show more stability than crude oil.
Oil is global. A disruption in the Middle East or a production cut by OPEC sends crude swinging. Natural gas is more regional.
Pipelines connect supply to demand. Storage buffers the swings.
But storage has limits. A long, hot summer can drain it. That is when prices jump.
Past data backs this. The Energy Information Administration tracks storage injections and withdrawals. In a normal year, storage builds from April through October.
Then winter draws it down. But summer demand can accelerate the drawdown before winter even starts.
That tightens the market. It sets the stage for higher prices in the fall. Kessens’ analysis suggests that investors who understand this pattern can position themselves ahead of the move.
Cheniere, Targa, and EQT are his picks. Each plays a role.
Cheniere connects domestic gas to global buyers. Targa moves it. EQT produces it.
Together, they cover the value chain. The lesson from past seasons is clear. The market rewards those who watch the weather.
It punishes those who ignore it. This summer will be no different.
The heat will come. Prices will move. The only unknown is how far.
