Infinity Insights - Volume 14, Issue 6
MONTHLY UPDATE - JUNE 2024 EDITION
NATURAL GAS
NYMEX Natural Gas has settled down to the $2.70 range with the most recent EIA Weekly Natural Gas Storage Report showing a net injection of 71 Bcf week over week, less than consensus estimate at 69 Bcf. Natural gas has settled after a May, early-June run up. Pricing seems to have stabilized after US rig counts have finally found some support with a total natural gas rig count of 98, whereas 2024 began with 120 rigs and curtailment began with soft pricing.
Spot month natural gas has support at $2.50 with resistance at $3.15.
Calendar year 2024 finds support at $2.47 with resistance at $3.75. Calendar year 2025 has support at $3.11 with resistance at $4.30, a slight increase versus prior month.
Working gas in underground storage remains strong, although trending towards the average. As mentioned previously, domestic drilling has slowed down due to low prices. This is beginning to impact inventories as we see inventory levels flirting with the 5-yr maximum inventory band, which we haven’t seen since early 2024.
US dependency on natural gas has grown significantly over recent years. Furthermore, natural gas at current prices has proven to be the most affordable fuel source as the nation transitions to intermittent renewables. As you can see above, as a weight, natural gas electric generation is outpacing the total electric generation growth for the US.
WEATHER
We continue experiencing a hotter than normal season. Year to date, on a population weighted base, the US has already experienced 7% more cooling degree days than the historical average. We do not expect to see this trend slow down with the 8-14 Day, 1-Month, and 3-Month forecasts all showing above normal temperatures.
Current drought conditions across the country are normal with reasonable precipitation forecasted.
Atlantic Activity
June 19th Tropical Storm Alberto formed in the Gulf of Mexico and made landfall June 20th.
There are currently 2 disturbances in the Atlantic. One (AL94) tracking towards the Yucatan Peninsula and another off the west coast of Africa tracking towards the Caribbean. We are still expecting a very active hurricane season. Note: Atlantic hurricane season does not peak until mid-September.
The Main Development Region in the Atlantic remains incredibly hot. Current heat content is record breaking for this time of year. The current heat content is at a level we would expect to see in mid-September. Ocean heat content has leveled off a bit in the last few days, bucking the trend of continued heat increases day after day.
The recent deceleration in ocean heat content may be attributed to the Saharan Air Layer (SAL). The SAL is a hot, dry, dusty system that moves from the Sahara Desert, westward towards the western Atlantic at 5,000-15,000 feet above sea level usually seen late-June through mid-August. Although the system is hot and dry it has a cooling effect for the areas it covers. The iron rich dust reflects a large amount of radiation from the sun which is disbursed into the atmosphere. The SAL has about 50% less moisture content than typical air over the Atlantic. SAL’s dry air along with its 25 to 55 MPH winds can disrupt cyclone formation as the drier air causes vertical wind shear and the horizontal winds can disrupt the organized swirling winds of a cyclone. An active SAL could serve the Gulf and Eastern US well this hurricane season, disrupting some Atlantic disturbances. If you are in the region, get ready for hazy days, sub-optimal air quality and pretty sunrises and sunsets starting this weekend.
MARKET NEWS
Nuclear Approval Overhaul – ADVANCE Act
Tuesday, June 18 the US Senate voted and approved the ADVANCE Act (Accelerating Deployment of Versatile, Advanced Nuclear for Clean Energy), a bill designed to expedite the approval process for new nuclear power plants. The bill includes a major reduction in fees charged by the Nuclear Regulatory Commission (NRC), expedites the licensing process for new reactors, and gives the NRC the ability to work with foreign regulators allowing US companies to potentially export technology. The ADVANCE Act will soon go to President Biden who is expected to sign the act into law.
The US was the world leader in nuclear technology in the 1950’s. US’s dominance in the sector began to wane in the 1970’s when energy demand stagnated and the public’s fear of nuclear radiation increased. Nuclear power regained momentum in the early 2000’s as climate change garnished attention. The 2000’s exploration of new nuclear power plant deployment lost steam as designers were dealing with new technology and “one of a kind” nuclear reactors proven to be too expensive to be economically viable. Also, during this time, alternatives such as (comparatively) inexpensive wind turbines were advancing and became the new dominant green generating source. Additionally, this is also when fracking took off and shale gas became abundant. These cheap alternatives caused US nuclear companies to lose power plant construction deals. Over the last decade more than a dozen nuclear reactors have been shut down and only 2 reactors have come online. The 2 reactors to recently come online were the (financially) disastrous Georgia Power’s Plant Vogtle units 3 and 4. Units 3 & 4 were originally budgeted at $14B but the actual cost was approximately $30B. Unit 3 was scheduled to come online in 2021 but was only connected to the grid in April 2023. Unit 4 was expected to come online in 2022 but was delayed until March 2024 - a huge setback for nuclear power acceptance.
Our take: This bill is a big step in the right direction for domestic energy independence. The US will need additional generating sources as demand skyrockets and we transition to renewables. This bill incentivizes private industry to invest in the technology, creating jobs and generating electricity from a dependable, clean, domestically available resource.
Recent nuclear power plant projects with their delays and overruns have left the industry in a bad position. The US has fallen behind in nuclear technology and now needs to catch up to China. The latest nuclear power plant technology is known as Generation IV. Generation I are mostly retired at this time and Generation II and III are mostly still in operation. China has the only Generation IV nuclear power plant online which came online in 2021. US owned TerraPower broke ground on their Wyoming Natrium Generation IV nuclear power plant on June 10, 2024. The plant is expected to be completed in 5 years. We will closely follow the progress of the Natrium plant as its success or setbacks will have a staggering impact on nuclear development moving forward.
GEOPOLITICS
Middle East
Houthis continue terrorizing ships in the Red Sea. Monday, June 24th the Houthis claimed responsibility for a ballistic missile attack on a Liberian flagged container ship in the Arabian Sea. The Red Sea and Gulf of Aden Joint Maritime Information Center confirmed the attack but claim the vessel was not hit. Red Sea transits in May 2024 are down 80% year over year.
Tension in northern Israel and Southern Lebanon is intensifying. Last week President Biden’s Middle East envoy met with top ranking Lebanese officials. The envoy sent a message to Lebanese leadership saying they would be unable to stop an Israeli invasion of Lebanon if the Iranian backed militia, Hezbollah, continued launching missiles into northern Israel.
The war in Gaza has entered a new phase according to Netanyahu. On Sunday the prime minister said “intense phase of the war with Hamas is about to end”, also noting “it doesn’t mean the war is going to end, but the war in its current stage is going to end in Rafah. This is true. We will continue mowing the grass later”.
Time will tell if the de-escalation in Gaza is because of needed resources for a potential confrontation with Lebanon or that Israel has mostly achieved its goals in Gaza.
Europe
The Russian Ukraine War is escalating as the US has given Ukraine the (limited) green light to use American munitions to strike Russian territory. Earlier this week there was a massive explosion in what is believed to have been an ammunition storage facility in Kursk, a Russian city near the Ukraine border. On Sunday Ukraine attacked Sevastopol (Crimea) with (allegedly) US provided weaponry, resulting in 5 deaths and at least 100 injuries. Russia has retaliated with more intense missile and drone strikes. Ukrainian air defense systems have proven to be relatively effective.
Inflation in the Euro Zone appear to be cooling off. The European Central Bank (ECB) cut interest rates a quarter-point earlier this month and stated it was reasonable to expect 2 more cuts this year. This marks the first interest rate cut for the ECB in 5 years. Central banks in Switzerland, Sweden and Canada have already had rate cuts this year.
Global natural gas prices ($/MMBtu):
Henry Hub (USA): $2.95
NBP (UK): $10.77
TTF (Dutch) $11.24
JKM (Japan/Korea) $12.03