I just can't get enough. There is always a soundtrack running through my head as I compose my columns, and now it is a tune by Depeche Mode. This week has seen an extraordinary jump in the prices for natural gas, as many geographies just can't get enough of it. Both the Asian (JKM) and European (benchmarks) are making new record highs. In Friday's trading, Title Transfer Facility hit the heretofore unimaginable 100 euro level. We are dealing with natural gas prices that produce an oil-equivalent price of $200 per barrel.
It's insane.
Things have cooled off a bit in U.S. trading, with contracts at the Henry Hub quoted at $5.64 per million British Thermal Units as of this writing. Beware of that contract, though. It is not with affection that commodities traders refer to "natty" as the widow maker. Volatility reigns supreme, but look at a chart of any of the natgas benchmarks and you will see a pattern that is remarkably un-volatile. Up. Up. Up.
So, we live in a week in which U.K. drivers are panic-buying "petrol" and a power plant in Germany quite literally ran out of coal. Coal has two main uses, depending on its sulfur content, metallurgical and thermal, and the old rule of thumb for oil is that 70% of it is used (once refined) for transportation.
But there is simply no fuel known to man that is more flexible than natural gas. According to the Energy Information Administration, the electric power sector accounted for 38% of the U.S consumption of natural gas in 2020 and produced 33% of our nation's power. So that still leaves 62% to be consumed by industrial (33%); residential (15%); commercial (10%); and transportation (3%). That one little carbon atom (in pure, methane form, natural gas is CH4) can do so much and be used in so many ways.
So, the world can't get enough natural gas. Europe's current shortages are caused by a mysterious decline in shipments from Russian giant Gazprom from its operation in the Yamal peninsula. Oh, that Vladimir Putin is such a character!
Then, Cathie Wood on Friday morning on CNBC predicted that oil would end up like "whale oil." People can make ridiculous predictions. That's fine. They can also pay ridiculous multiples for companies that produce inferior products (I am looking at you, Elon Musk.)
I don't care.
But therein lies the opportunity for patient investors. I am going to keep playing natural gas through the shippers (Flex LNG has been an absolute revelation this year, and stands as one of my best stock picks in my Real Money career,) drillers (I have been playing Cabot Oil & Gas Corporation (COG) this week ahead of its recently approved, but not yet consummated merger with Cimarex) and finvesting in forward-looking folks like Charif Souki of Cheniere (CQP) and Tellurian (TELL) , and Wes Edens at New Fortress Energy (NFE) .
I am in Brazil now, and I am just being bombarded with LNG news. Brazil is even purchasing LNG cargoes from Argentina this week, despite a rivalry that extends well beyond the soccer pitch, and I believe there is a 0% chance that the Bolsonaro government will allow blackouts to occur ahead of next October's general election.
But that's the point. About 5,000 years ago, some wise caveman cracked two stones together and started a fire ... and that combustive power changed human history. When mankind really figured out how to harness the power of hydrocarbons in the mid-1800s, it brought hundreds of millions of people out of poverty and revolutionized the way human beings travel. We are going to give all that up so some woke portfolio manager can be happy? No.
When people hit the light switch and nothing happens, they tend to vote for the party that is not in power. When people receive massive utility bills, they tend to vote for the party that is not in power. When the gas station doesn't have gas ... you get the point.
Natural gas is the ideal transition fuel for a lower carbon future. Make sure your portfolio reflects that reality, not weirdly illogical predictions of a dystopian future.
