We recently hosted Rusty Braziel, President & Principal Energy Markets Consultant at RBN Energy, and Jim Cramer, market commentator and host of CNBC’s Mad Money, at the New York Stock Exchange and asked them to share their outlook for U.S. and global natural gas markets. In a live webinar filmed on the NYSE trading floor, Cramer and Braziel explored critical factors that are moving natural gas markets, key price drivers, the new administration and hedging trends.

Watch the Webinar

8 core takeaways from the webinar:

1. Natural gas prices rose from $2 to $3 over the last year - here’s why

A combination of factors drove up the price of natural gas from 2016 to 2017, according to Braziel. Those factors include:

  • Production decreased by 2-3 billion cubic feet (Bcf)
  • Inventories dropped ~10%
  • Exports out of Cheniere increased

Together, these factors tightened markets and drove prices up.

Watch the full clip @ 1:27

2. Stable outlook for natural gas for the rest of 2017 and into 2018

The forward curve is currently pricing natural gas at ~$3 for the next 10 years, which Braziel notes as a positive outlook for the marketplace. However, he also notes that natural gas markets remain tied to weather, and the upcoming winter will be an influential factor. If we see a cold winter, prices will go up; if we see a warm winter, prices will go down.

In terms of production, Braziel notes that natural gas production is now back up to where it was last year, which means there’s more gas on the market. While Marcellus/Utica accounts for ~50% of U.S. nat gas production, he believes the Permian basin will account for one-third of production over the next two to three years. Braziel cautions that we’ll need to keep a balanced market to maintain a positive outlook for natural gas, which means we’ll need continued demand in Mexico, liquefied natural gas (LNG) exports, additional gas, fire and power generation, and additional demand going into industrial capacity.

Watch the full clip @ 4:47

3. The U.S. role in global natural gas price setting - can it grow?

The U.S. currently accounts for 20-25% of the world’s liquefied natural gas LNG supply, but the country’s contribution to total global gas supply is much smaller. When asked if the U.S. has a chance to break Russia’s stranglehold over Western Europe’s gas market in the near future, Braziel answered in the negative. For now, the U.S. doesn’t produce enough natural gas to be the price-setting mechanism for the rest of the world.

Watch the full clip @ 8:12

4. The future of U.S. pipeline creation

Braziel cautions that we’re going to see the market tighten up in the next year or so, which will leave producers with an oversupply of incremental gas. When that happens, the U.S. will need several new pipelines – a circumstance Braziel thinks we could have to face by 2019. He notes that there are currently 24 pipeline projects slated out of Marcellus/Utica, 20 of which provide incremental takeaway capacity totaling 17.5 Bcf a day. But, when it comes to the Permian, the basin doesn’t have enough pipeline in its current state for transporting natural gas or oil.

Watch the full clip @ 10:05

5. Strong dynamics of the natural gas liquid (NGL) market

NGLs have been increasing faster than any other commodities market. Whereas propane was imported into the U.S. until 6 or 7 years ago, the U.S. is now exporting approximately 1.1 million barrels a day – about half the amount the U.S. creates in all its natural gas process plants and refineries. Petrochemical crackers have started using propane instead of low-grade gasoline to create plastics, which is continuing to increase the demand for NGLs.

Watch the full clip @ 18:20

6. The impact of wind energy on nat gas demand

According to Braziel, the time to talk about wind energy is now. He notes that 23% of electricity in the state of Texas is produced by wind, which is cutting back the demand for natural gas. Wind is now a viable alternative to coal or natural gas in terms of energy production.

Watch the full clip @ 24:08

7. Energy regulation under the new administration

Regarding President Trump’s energy-friendly policies, Cramer asks Braziel how energy companies should react to the administration’s plans for the ongoing regulation of methane. In response, Braziel notes that energy companies are committed to thinking long-term, which means planning beyond the current administration. Furthermore, he notes that energy companies are committed to doing the right thing on behalf of their shareholders and the communities where they do business regardless of regulation.

Watch the full clip @ 25:25

8. And finally, trends in natural gas and oil hedging

Noting that there’s a lot of hedging activity in current natural gas and oil markets, Braziel looks at oil as a case example. Thanks to increased rig efficiency, longer drilling laterals and an increased use of sand, oil producers have dropped their per-unit development costs. With lower overhead costs, producers are able to make a profit at lower oil prices. Braziel notes that the reason oil prices are hovered around the $50 mark for so long is that producers started hedging out two or three years every time the price rises above that mark. The forward curve for the next 5 years is at $50, which means producers who are effectively hedged are managing the risk that oil prices will drop into the lower $40s or even upper $30s. The same principal is currently guiding hedging in natural gas markets.

Watch the full clip @ 27:47

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