Editor’s note: The markets and our Chaikin Analytics offices will be closed Monday, May 30, for Memorial Day. Because of that, we won’t publish the Chaikin PowerFeed e-letter. Look for your next issue on Tuesday, May 31. Enjoy the holiday.
Millions of Europeans are struggling to heat their homes right now…
Take Henry Backhaus, for example.
The 65-year-old German man used to buy natural gas through a private gas distributor. But then, Russia’s war in Ukraine sent prices soaring across Europe.
Now, the private gas company can no longer afford to buy natural gas. So it dropped Henry as a customer.
That gave Henry no choice but to work with the local utility to get his natural gas.
The problem is, the local utility wanted Henry to pay the equivalent of $850 for the first month alone. That’s more than he previously paid to heat his home for an entire year.
So… Henry fired up his wood-burning stove. Thousands of folks across Europe are doing the same thing.
Unfortunately, that’s not an option for everyone. Many people simply need to pay the higher costs.
Folks, we’re on the edge of summer here in the U.S. But winter will be here again before we know it. And America is closer to facing Henry’s reality than you realize.
Today, I’ll explain how natural gas prices could potentially quadruple from here…
In the U.S., we’ve enjoyed lower energy prices for decades compared with our overseas counterparts.
Natural gas in Europe costs $30 per million British thermal units (“MMBtu”) today. And it has been as high as $45 per MMBtu. Here in the U.S., prices just passed $9 per MMBtu.
Now, things are a little different in America. Historically, foreign pricing issues don’t bother us. That’s because North America is vertically integrated…
Natural gas is either produced in the U.S. or brought in from Canada. It’s easy to access. So we’ve benefited from a foreign-pricing buffer in the past.
Even better, the shale boom led to an abundant supply. Growing shale production easily exceeded demand. The surplus led to lower prices and a stable outlook for the past 15 to 20 years.
However, that’s changing now. And we should prepare for the worst…
I wasn’t joking about burning wood to heat your home. It’s happening in Germany already. And with U.S. natural gas prices already surging, it could become our reality next winter…
Gas prices are already up more than 100% in 2022 here in the U.S. And the market is tighter than some realize…
In fact, the U.S. only recently became a natural gas exporter. And our surplus is relatively small compared to our consumption…
Specifically, in 2021, our surplus only exceeded our consumption by about 13%. Nearly all of that surplus is tied up in exports.
Sure, we benefit from our gas-rich shale deposits. But low prices have slowed production. And the U.S. simply wasn’t prepared for the kind of market we’re seeing right now…
It takes a long time for production to ramp back up. You can’t just flip a switch to turn it on.
The energy space is also facing pressure from climate-change enthusiasts. As a result, not as much capital is flowing in for oil and gas producers.
And no matter where you stand on the issue, the fact is simple… policy changes hurt investment in the oil and gas industry.
Then, you need to add in increasing headwinds due to labor shortages and more. And suddenly… it’s a recipe for disaster.
Folks, keep your eyes on the energy sector today. We might be burning wood to heat our homes sooner than you think.
Good investing,
Pete Carmasino
