U.S. Natural Gas Beats Covid-19

It’s surely going down as the most challenging year ever for the U.S. oil and gas industry. But a solid rebound for shale has been in the works for a few months. WTI crude oil prices, for instance, are now up over $45 per barrel, which is at or even above the breakeven price for many producers and the highest price since early-March.

Yet to be clear, oil’s sister fuel natural gas remains the real fuel of the future. In short, any serious climate policy has more natural gas as a centerpiece strategy.

While U.S. oil demand has been lower this year (at complete stagnation since June, with gasoline use 90% normal and jet fuel 45% normal), gas consumption has been at or even above year-ago levels.

Seemingly unbeknownst to most, U.S. natural gas demand has never really went away through Covid-19 (Figure below), showing its resiliency. For measure, electricity and industry account for ~65% of U.S. gas needs.

Rising 70% from 2009-2019, U.S. natural gas production this year fell 8-9% at the worst of the pandemic. Output is on the rise, however, and is now consistently hitting 90-91 Bcf/d, compared to 93-94 Bcf/d at the end of 2019. Higher prices for both oil and gas in recent months have greatly helped.

And make no mistake, mostly due to optimism around production (because of our massive low-cost resource base), the only gas prices on the futures curve currently above $3.00 per MMBtu is next winter 2021-2022 – for the next 13 years!

The fact is that no energy source can compete with such low commodity prices for gas, especially since we’ve already built a gigantic complex to continually utilize more gas. At some 545,000 MW, 45% of U.S. power generation capacity is natural gas-based, which is more than coal, nuclear, wind, and solar COMBINED.

These are state-of-the-art gas power stations that are built to operate another 40 or 50 years, compared to typically 20 years for wind farms and 30 years for solar. In turn, the truth is that electric cars are more aptly named “natural gas cars.”

Looking forward, a new administration and congress will come face-to-face with this U.S. demand reality of more gas and what I term “buoyantly very high” oil demand (i.e., not necessarily rising but not falling in the absolute sense much either).

I’d be careful: mandates to force more expensive, less convenient electric cars on the American public could easily face major political backlash, especially as the economic justice movement continues to take flight: “Latino Leaders Are Fighting California’s…