August 2024 Volume 6

ENERGY

cast could move even higher depending on economics and govern ment regulations. One element that appears inevitable is the advancement in global demand for LNG. In May of this year, Europe received 42% of American LNG shipments, with Asian markets brining in another 41%. Latin American and Caribbean nations are also showing stronger demand, which has created even greater competition in the marketplace. Foreign countries are looking to secure long-term supply agreements to ensure adequate energy for years to come. It seems inevitable that LNG exports (along with pipeline gas to Mexico) will put a strain on domestic natural gas reserves for the near future. 3. Weather conditions point to more uncertainty. According to NOAA, 2023 was the warmest year on record (since 1850), and all 10 of the warmest years occurred during the last decade (2014-2023). Weather is still the primary driver of near-term energy prices. While it is expected that June will start off relatively mild for large portions of the country, meteorologists nearly unani mously forecast another hotter-than-normal summer ahead. This means increased electric power demand and greater depletion of natural gas reserves to fuel power plants. In addition to higher temperatures, there have been significant climate events that have affected energy prices across the globe, including hurricanes, drought, flooding, and wildfires. Some of these occurrences could be considered common when viewed historically; however, through the lens of climatologists, the frequency, duration, and severity of these disasters is triggering ever-growing concern. Takeaways As of June 4th, NYMEX natural gas strip prices out to 2030 are all trading below $4 per MMBtu in contango, where futures prices are trading at a premium to the immediate “spot” price. History has shown that any number of unforeseen events can drive prices substantially higher – i.e., wake the sleeping giant – for a substantial duration (i.e., 2022 averaged $6.64 and 2008 averaged $9.03 per MMBtu across the entire year). That said, the developments outlined (along with others) are already factored into current futures pricing. The verdict? The cost to buy natural gas or electricity to cover consumption in 2030 is higher than the cost to buy energy for tomorrow. But the real question we have to ask ourselves is whether that premium is enough? If we flash forward and look at the price of 2027, 2028, 2029 or 2030 natural gas, do we expect it to be lower than it is trading today? That possi bility certainly exists … to an extent. Right now, we are seeing what happens when natural gas prices get too low. Producers slow down production or cease operations entirely until prices recover. Power plants that can switch from burning coal to natural gas will do so until it is more economically beneficial to shift back to coal.

It is equally likely that one year from now prices will be higher, yet the degree to which prices can increase is dramatically higher than the potential downside that could result by waiting. The same principle holds for electricity. The movement is underway to shut down the oldest, dirtiest generators and replace existing capacity with natural gas and renewables. The riskiest move right now is to do nothing. It is of the utmost importance to evaluate long-term energy goals and take this opportunity to secure some form of price stability while condi tions are still favorable. For help preparing your operations for a new era of natural gas and elec tricity demand, contact us at letstalk@transparentedge.com Nancy Gardner VP, Channel Partners & Associations Transparent Energy Email: ngardner@transparentedge.com Phone:732-288-5126

FIA MAGAZINE | AUGUST 2024 11