August 2024 Volume 6

ENERGY

WHEN THE SLEEPING GIANT WAKES: WHAT’S MOVING ENERGY MARKETS (And How to Prepare for Changes Ahead) By Nancy Gardner

E nergy is one of those commodities that is a sleeping giant – until it isn’t. That’s typically when geopolitical instability throws off supply and demand (Russia invades Ukraine), the weather turns extremely hot or cold (the “big freeze” in Texas), acci dents or natural disasters knock infrastructure offline (Freeport LNG explosion), or some new macro-economic factor alters the entire energy calculus (AI creating a data center boom, and with it high electricity demand). In each of these cases, being prepared for when the giant wakes is paramount to your success as a business operator (one for whom energy is a major operating expense). At Transparent Energy, one way we like to help clients prepare for the energy future is by stopping first to consider the past. Looking back, what factors have driven energy price changes, and, given these factors, what might the future hold? So, let’s start there: For 12 consecutive years, beginning in 2009, the average annual price for NYMEX natural gas (an important proxy for electricity prices) settled below $4.50 per MMBtu. Yet, beginning in 2021, several factors emerged to reset expectations for the rest of the decade. Here are three key market drivers we are now focused on as we help clients look ahead to calibrate their energy budgets and evaluate buying opportunities through the end of the decade:

1. Electric demand growth coincides with fossil fuel power plant retirements. Much has been made of the persistent efforts of local and national governments to decarbonize the economy. The United States and other countries have established numerous benchmarks to reduce harmful emissions, particularly from older fossil fuel power plants. Movement is afoot to electrify the manufacturing, heating, and transportation sectors. Simultaneously we are seeing a spike in elec tric demand related to data centers and cryptocurrency mining. The Electric Power Research Institute claims that internet queries utilizing artificial intelligence “require around ten times the elec tricity of traditional searches” and expects U.S. data center electric demand to double by 2030. 2. Global thirst for natural gas appears unquenchable. It wasn’t until 2017 that the U.S. began exporting liquified natural gas (LNG) in a meaningful way, but it took only six years to assume its role as the commodity’s largest shipper to foreign markets. In 2023, U.S. LNG exports set a record just above 15 billion cubic feet (Bcf) with an annual average of 11.9 Bcf/day. U.S. export capacity is expected to increase by more than 80% by 2028, and that fore

Source: International Energy Agency

FIA MAGAZINE | AUGUST 2024 10