some times you just need to stare up at the stars
Global Markets
From time to time we hit the electricity speaking circuit. Our topic of “expertise” is volatility in the electricity markets- what’s driving the prices of today and in the future. For long time readers, you’ve heard this a hundred times so bear with us as we rehash. Basically we cover a list of topics ranging from net-zero to grid transmission., load growth to geopolitics, etc., but when it comes down to both short term and long term volatility, natural gas plays a huge role. It’s such a big role, we had to beg our friends at Pinebrook to give us some weekly insight.
Natural gas is the marginal fuel setting the market price of electricity the majority of time in most of the country. In our deep analysis, which consists mostly of common sense, the short term day to day LMP is driven by the availability of gas under our just-in-time pipeline delivery system, while longer term, the US market may become fungible like oil because of LNG. The three charts below are Henry Hub, Japan-Korea Marker, and Dutch TTF(trades in MWh so divide by 3.2 to get equivalent USD price in MMBtu) from January to early this week. These markets represent the natural gas markets in the US, Asia, and Europe.
We are pointing out these charts because they show both divergence and correlation. The early spike in the US was caused by Fern which interrupted production and suffered from limited pipeline capacity to meet demand. Simple econ 101 dictates that supply/demand imbalance means price dislocation and it’s fair say and easy to see that’s what happened.
As we look at the charts from this last week, we see huge price appreciation in Asia and Europe, while the US barely flinched as drones and missiles started flying. The United States is the biggest exporter of LNG in the world, followed by Qatar, with both Asia and Europe being net importers from both. Our argument has been that eventually, through the movement of LNG, the US chart would match the Asian and European markets…again, much like crude. As of right now, the US has plenty of production, when it’s not minus 20 across half of our country, to fill our domestic needs and top out our export capacity. Below is an EIA estimate of how our export capacity should double given the projects under construction in North America. If all these projects come online as scheduled, that would push NA export capacity to near 30 Bcf/d which is double today’s numbers. If that happens and more US production can hit the open market, it’s fair to assume Henry Hub would look something like JKM and TTF which gets us back to natural gas and electricity and higher prices.
For more of a deep dive into this, please see Pinebrook comments.
Natural Gas Market Commentary
provided by 
To say the least, the effective closure of the Strait of Hormuz has had a dramatic impact on global energy markets since last week. With very realistic fears that a substantial percentage of the world’s crude oil and LNG supply could be choked off for an extended stretch, crude oil benchmarks have rallied 25–30% and European and Asian natural gas prices have climbed by more than 50% since last Friday. Meanwhile, nearby U.S. natural gas futures are firmer, but by less than 10% over the same stretch, moving from about $2.85 last week to just above $3.10 per MMBtu as of Friday morning. Deliveries for Winter 2026-27 have seen a greater impact, but even that strip is only up about 11%, rallying from $4.09 to roughly $4.45 per MMBtu.
With the U.S. currently liquefying roughly 18% of domestic supply for export, we are very much connected to the global market as the world’s largest LNG supplier. However, our market remains mostly insulated from the fundamental impact of a prolonged supply shortage in Europe and Asia because we lack any substantial marginal or idle LNG export capacity.
Since the first liquefaction train was brought into service at the Sabine Pass terminal in 2016, export volumes have increased rather steadily, with capacity now pushing 20 Bcf per day. For the most part, since U.S. LNG exports began ramping up a decade ago, new terminals have come into service and been utilized at or very close to full capacity. While this has certainly impacted the domestic market by increasing baseload demand, production volumes have mostly kept pace, and any fears that U.S. pricing would converge with much more expensive global benchmarks have so far been unfounded.
Even in 2022, when Russian LNG supply was cut off by most of the Western world, it took a confluence of other bullish factors for NYMEX natural gas to even sniff $10 per MMBtu. This time around, with soft fundamentals at home and no realistic option to quickly and materially ramp up exports to fill the gap left by shuttered Middle East capacity, it is no surprise that the price response in the U.S. has been so muted. Sure, there is the risk of a psychological impact as bullish sentiment spreads, but current global circumstances should not have a direct fundamental impact on the U.S. market.
A mild March and healthy storage inventories are still of chief concern for NYMEX natural gas, even as the rest of the energy world is enveloped in chaos.
Maritime Chaos
We’ve had a few folks reach out to us regarding the Middle East conflict and our thoughts. Frankly, we aren’t on speed dial with the White House or the Pentagon, so our opinion or knowledge of the situation is no better than most. We are big on the Occom Razor approach that states something along the line of the simplest answer is probably the right answer. Because of that, we’d guess this might wind down fairly quickly and we’d base it on one thing….China’s need for oil to flow. The headline earlier this week that grabbed us was that China is suspending all diesel and gasoline exports in a conservation move as up to 40% of it’s oil imports come through Hormuz.
After the skirmish last year, EIA put out this chart to show crude and condensates moving through Hormuz. What this doesn’t show is that roughly 90% of Iran’s oil exports sail to China. Like we said before, we don’t have a hotline to the Pentagon, so we aren’t sure on if the oil infrastructure in Iran has been targeted, but it’s probably a good bet some is intact and China would like it to flow soon. How that is accomplished, be it a deal with the US or pressure on Iran, it seems at least plausible.
Cocktail Corner
If ever there was a week for Cocktail Corner, this is it. As we head into the weekend, we will be at the one week mark for the conflict in the ME. There has been lots of talk about the price of oil and gas (heck see above), but there might be a bigger issue than the commodity cost. The maritime world is run by insurance, you can’t get insurance, you don’t sail regardless of commodity price. Some insurance companies are starting to cancel issuing war and terrorism per voyage. If this happens, at scale, the back up in the Strait of Hormuz is just starting.
This is so important, a conflict induced rally in both oil and gas paused Wednesday as President Trump announced the US was thinking about US Navy escorts for ships, and the possibility of the US Internal Development Finance Corp helping with risk insurance with financial guarantees. Thursday the rally was back on as industry experts questioned the financial backing. JP Morgan estimates it’s going to take $350 Billion to get ships covered and moving.
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DAY-AHEAD LMP PRICING & SELECT FUTURES
RTO ATC, PEAK, & OFF-PEAK CALENDAR STRIP
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Our readers are the best! Last month we tried to slip in a little nugget about our WPO Ambassador of the month, some of you caught it. You asked who is that fella, and can you tell us more? Trying to stay modest and on the down low, we just left it at he’s a very important part of our staff. But since you asked, we decided we would share something. In the spirit of Coop world, where some coops have monthly magazines and ask members to share recipes, we asked for our guy’s favorite recipe. We give you RT banana bread.
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