Geopolitical Tensions: Effects on Natural Gas Prices

Supply Chain Disruptions

Global disruptions and operational challenges are straining supply chains, leading to higher refining margins and potential equipment shortages. Companies like ExxonMobil and Chevron are actively managing supply chain activities to ensure resiliency, while geopolitical tensions and regional supply interruptions further exacerbate the situation, impacting natural gas prices.

"Refining margins in the quarter rose to the top of the 10-year range, as demand grew while turnarounds and global disruptions weighed on supply." --- (XOM, sec filing, 2024/Q1)

"Supply Chain and Inflation Impacts The company is actively managing its contracting, procurement, and supply chain activities to effectively manage costs and facilitate supply chain resiliency and continuity in support of the company’s operational goals." --- (CVX, sec filing, 2024/Q1)

"If the Plan ultimately were to take effect in its current form (including full compliance by a revised compliance deadline accounting for the stays, and assuming failure of all challenges to SIP disapprovals and the Plan), we currently estimate that it would have a material impact on us, including estimated costs necessary to comply with the Plan ranging from $1.5 billion to $1.8 billion (including costs for joint ventures that we operate, net to our interests in such joint ventures), potential shortages of equipment resulting in our inability to comply with the Plan, and operational disruptions." --- (KMI, sec filing, 2024/Q2)

"So we're already utilizing their remote logistics operations center in our own drilling and completions operations in order to improve supply chain." --- (XOM, earning call, 2024/Q2)

"Crude oil and natural gas prices are subject to external factors over which the company has no control, including product demand connected with global economic conditions, industry production and inventory levels, technology advancements, production quotas or other actions imposed by OPEC+ countries, actions of regulators, weather-related damage and disruptions, competing fuel prices, natural and human causes beyond the company’s control, and regional supply interruptions or fears thereof that may be caused by military conflicts, civil unrest or political uncertainty." --- (CVX, sec filing, 2024/Q1)

Regional Conflicts and Natural Gas Supply

Regional conflicts can significantly impact natural gas supply by altering export policies and transport routes. The U.S. shift to a net exporter status has increased global competition for natural gas, while regional transport volumes, such as those in the Rockies, reflect changes in supply dynamics influenced by geopolitical tensions.

"He was instrumental in making the case that restrictions on the export of U.S. oil should be eased – which flipped the U.S. from being a net importer to a net exporter of oil and was key to reducing U.S. reliance on external sources for energy, further strengthening our country's energy independence and national security, along with increasing competition for global supplies of oil and natural gas." --- (XOM, press release, 2024/05/02)

"Tom Martin: Thanks, Kim. Starting with the natural gas business unit. Transport volumes increased by 2% for the quarter versus the first quarter of 2023, driven primarily by increased flows eastbound on our Rockies interstate pipelines into the Mid-Continent region." --- (KMI, earning call, 2024/Q1)

Sanctions on Gas-Producing Countries

Sanctions and trade restrictions on gas-producing countries, such as those around Russia, disrupt production and export capabilities, leading to potential increases in natural gas prices. Government mandates and sanctions also force companies like ExxonMobil to adjust their production levels, further impacting supply and market dynamics.

"Governments have imposed and may impose additional sanctions and other trade laws, restrictions and regulations that could lead to disruption in our ability to produce, transport and/or export crude in the region around Russia." --- (CVX, sec filing, 2024/Q1)

"Government Mandates are changes to ExxonMobil's sustainable production levels as a result of production limits or sanctions imposed by governments." --- (XOM, sec filing, 2024/Q1)

"Government mandates (curtailments) are changes to ExxonMobil's sustainable production levels as a result of production limits or sanctions imposed by governments." --- (XOM, press release, 2024/08/02)

"Government mandates (curtailments) are changes to ExxonMobil's sustainable production levels as a result of production limits or sanctions imposed by governments." --- (XOM, press release, 2024/04/26)

Impact on Natural Gas Demand

Natural gas demand is expected to grow, particularly in the Americas, driven by capacity expansions (XOM). Its critical role in providing uninterrupted power for AI and data centers underscores its importance (KMI). Geopolitical tensions can impact takeaway capacity and gas prices, influencing overall demand (CVX).

"Most of that led by what's happening in the Americas. And then on gas that's going to continue to grow in demand, and it is another -- again, a function of the capacity is coming on." --- (XOM, earning call, 2024/Q2)

"But it's a reminder, all of us that natural gas and nuclear still have an extremely important role to play in order to provide the uninterrupted power that AI and the data centers will need." --- (KMI, earning call, 2024/Q1)

"Last thing I might mention, which might be implied in your question, you see some talk about the takeaway capacity out of the basin and are people constrained, is that impacting particularly gas prices more than the other commodities." --- (CVX, earning call, 2024/Q1)

"Jim Chapman: All right, next question. We saw a number of comments on the fact that the U. S. And the world will continue to need fossil fuel based energy for the foreseeable future. Can you share what ExxonMobil is doing to meet demand?" --- (XOM, event transcript, 2024/05/29)

Shift Towards Alternative Energy Sources

Geopolitical tensions are accelerating the shift towards alternative energy sources. Companies like NextEra Energy and First Solar emphasize the independence, cost-effectiveness, and scalability of renewables like wind and solar. Tesla's commitment to sustainable energy and corporate zero-carbon goals further drive this transition.

"As data center growth accelerates to facilitate our economy shift to artificial intelligence, and as we continue to re-domesticate and electrify across multiple sectors, our nation must embrace an all of the above strategy to meet increasing electric demand. Renewables and storage are energy independent as they rely on American wind and sunshine." --- (NEE, earning call, 2024/Q2)

"Solar continues to demonstrate that in many U.S. locations, it is the lowest cost source of energy and there are a few other generation sources that can be expanded at scale or notably deployed as quickly as solar, a critical attribute for end users who place a priority on time to power. In addition, given the presence of long-term fixed price PPAs, relatively predictable degradation, few moving parts and an unlimited free fuel source in the form of sunlight, solar is by nature, is deflationary energy generation asset, further contributing to the nation's economic growth." --- (FSLR, earning call, 2024/Q2)

"No other shareholder base understands its company like you do, nor is as committed to Tesla's mission to accelerate the world's transition to sustainable energy like you are.It is also a shareholder base that understands that in order to accelerate the world's transition to sustainable energy and a sustainable energy economy, Tesla needs to develop the most revolutionary technologies, not only in autos, but in energy and artificial intelligence as well." --- (TSLA, Annual General Meeting, 2024/06/13)

"And as we've been replacing these assets, new goals from corporate energy companies trying to get to 0 carbon goals have further stimulated growth across renewables, accelerating our transition to a cleaner energy economy." --- (NEE, Investor Day, 2024/06/11)

"This was a significant accomplishment towards the company's dedication to leading the way toward clean, affordable solar electricity as a viable alternative to fossil fuels. #FirstSolar25 #AmericanSolar #Throwback" --- (FSLR, Twitter post, 2024/04/02)

Future Outlook on Natural Gas Prices

Future natural gas prices are influenced by market conditions, political and regulatory developments, reservoir performance, exploration outcomes, and project completion timelines, as highlighted by ExxonMobil.

"Actual future results, including project plans, schedules, initial capacities, production rates, and resource recoveries could differ materially due to: changes in market conditions affecting the oil and gas industry or long-term oil and gas price levels; political or regulatory developments including obtaining necessary regulatory permits; reservoir performance; the outcome of future exploration efforts; timely completion of development and construction projects; technical or operating factors; and other factors cited under the caption 'Factors Affecting Future Results' on the Investors page of our website at exxonmobil.com and under Item 1A." --- (XOM, press release, 2024/04/12)

"Actual future results, including project plans, schedules, capacities, production rates, and resource recoveries could differ materially due to: changes in market conditions affecting the oil and gas industry or long-term oil and gas price levels; political or regulatory developments including obtaining necessary regulatory permits; reservoir performance; the outcome of future exploration efforts; timely completion of development and construction projects; technical or operating factors; and other factors cited under the caption 'Factors Affecting Future Results' on the Investors page of our website at exxonmobil.com and under Item 1A." --- (XOM, press release, 2024/05/07)