A while back we commented on why we give the oil market at least a passing glance daily. Earlier this month, in the EIA Short Term Energy Report, we got some validation on the importance. The graph below shows for the first time since 2014, a divergence in the markets of oil and natural gas as predicted by EIA, and we are already seeing signs of this in longer term futures contracts. So what gives? We've noted in the past that the natural gas market has become more and more priced on production rather than signs of demand. While it would be interesting, and we would sound really smart if we had some long winded answer, the very real and simple facts are lower oil prices lead to lower drilling of which natural gas is a byproduct.

At the risk of contradicting ourselves one paragraph later, there is some supply fundamentals at work here. While gas production is expected to slow, albeit slightly, the real story is it isn't moving higher to fulfil demand which could come from electricity generation, or more likely, LNG exports. EIA is forecasting LNG exports will rise roughly 35% from 2024 to 2026 which would put exports between 16 and 17 Bcf/d (heading to 27 Bcf/d in 2030) while domestic consumption stays around 91 Bcf/d.

So LNG demand is rising while production is stagnant or falling, what about electricity, we've heard and written plenty about that growth. In fact, if you look at the chart below, EIA is almost doubling it's growth forecast for 2026 from earlier this year. We have electricity demand growing, natural gas production slipping, export gas growing, this is the perfect recipe for electric prices to sky rocket! As the now retired great Lee Corso would say, "not so fast my friend". While EIA is predicting natural gas prices doubling from 2024 to 2026 for the reasons laid out, they are also predicting that natural gas generation will fall 3% in 2025 from last year.

So if natural gas is falling what is making up the difference? Wind, hydro, nuke are all expected to grow 2-4% YoY which is small given their already light footprints and solar is expected to grow an amazing 30%. While solar is impressive, and given the other growth, it still isn't enough to make up for gas shrinking while the overall load is growing....enter coal. The demise of coal would seem to have at least been put on pause in 2025 as it will be the first year since 2021 where coal generation will grow, which is 9% from last year.

Now that we've laid all that out, long time readers will have heard us talk about natural gas and the just in time nature of scheduling day ahead and its relation to day ahead electricity prices as well as futures. Just to be clear, we aren't changing our keep both eyes on natural gas for electricity prices thinking. While solar is interesting, natural gas still sets the marginal price of electricity in almost all the ISOs on a regular basis, especially in the late on peak hours of the day as the sun sets. Gas is still king....for now.

Speaking of datacenters, last week we discussed the rising attitude where everyone is bearish and the whole thing is a bubble with our opinion mirroring that sentiment. We mentioned that the wisdom of crowds may very well be right on this, but this opinion might be getting a little too crowded. In a crowded trade, or group think, when the opinion turns out to be correct the reaction is usually ho-hum. Conversely, if the opposite happens, some serious volatility or market moves can be the outcome.

Fast forward one week to this morning, the purveyor of markets is out echoing the same sentiment. Long time readers know we aren't in the Jim Cramer fan club (a story best told over a beer when you see us), but there is no denying he does his homework. This X post from this morning is just a little more, maybe a lot more, evidence on the datacenter sentiment.

Every so often we are asked to speak electric markets and the avenues to hedge. Typically, we point out that everything is tradeable, from options on mortgages to the leftovers at the slaughter house, so it only makes sense there are ways to hedge electric prices. Today, RBN Energy has an excellent blog introducing another tradeable driver of electric prices....weather. If you don't know RBN Energy, we can't recommend them more. Their information is free with a sign up and provides great insight on multiple topics. Instead of diving into the specifics of their post, we are just going to provide a link with the proclamation, it's worth the five minute read. At the end of it, chances are high there is nothing actionable for most of us, but just knowing these exists is worth the read.