Impact of U.S. Energy Policies on Natural Gas Supply and Pricing

Regulatory changes impacting natural gas supply

Regulatory changes are expected to boost natural gas supply and pricing, as companies like OKE and KMI anticipate increased rig activity and reliance on natural gas due to shifts in energy policy. This aligns with growing demand for natural gas, driven by the need for electric power and supportive market fundamentals.

"And as natural gas prices strengthen towards the remainder of the year, we could see rig activity increase in the gassier regions. In the natural gas pipelines segment, we benefited from higher firm and interruptible transportation rates in the second quarter. The demand for natural gas." --- (OKE, earning call, 2024/Q2)

"But as the Wall Street Journal recently pointed out, they will likely increase reliance on natural gas to replace the diverted nuclear power." --- (KMI, earning call, 2024/Q2)

"Price changes for natural gas are also impacted by seasonal supply, demand and infrastructure conditions in regional and local markets." --- (CVX, sec filing, 2024/Q1)

"From the supply perspective, we continue to see volume growth across our systems from increases in production. As it relates to demand, we continue to see supportive demand and fundamentals for natural gas, natural gas liquids, refined products and crude oil across our systems." --- (OKE, event transcript, 2024/05/22)

"While it's hard to peg an exact estimate of increased demand for natural gas, as a result of all this growth and the need for electric power, we believe it will be significant and makes the future even more robust for natural gas demand overall and for our midstream industry. And with that, I'll turn it over to Kim." --- (KMI, earning call, 2024/Q2)

Market dynamics influencing natural gas pricing

Natural gas pricing is primarily influenced by the growth in U.S. production, which has outpaced demand, leading to significant price decreases. For instance, average gas prices fell to $1.87 per Mcf in Q1 2024, down from $3.79 in 2023, reflecting these market dynamics.

"NGL and gas prices decreased due to U.S. natural gas production continuing to grow and outpace demand." --- (PXD, sec filing, 2024/Q1)

"Average NGL prices per Bbl and average gas prices per Mcf decreased to $24.49 and $1.87, respectively, during the three months ended March 31, 2024, as compared to $27.30 and $3.79, respectively, during the same period in 2023." --- (PXD, sec filing, 2024/Q1)

"The ultimate liquidation value of the Company's marketing derivatives will be dependent upon actual future commodity prices, which may differ materially from the inputs used to determine the derivatives' fair values as of March 31, 2024." --- (PXD, sec filing, 2024/Q1)

"The Company enters into purchase transactions with third parties and separate sale transactions with third parties to diversify a portion of the Company's oil and gas sales to (i) Gulf Coast refineries, (ii) Gulf Coast and West Coast gas markets and (iii) international oil markets, and to satisfy unused gas pipeline capacity commitments." --- (PXD, sec filing, 2024/Q1)

"From an economic perspective, despite rising interest rates to contend with significant inflation, the global economy remains remarkably resilient, displaying steady growth and slowing inflation." --- (PXD, sec filing, 2024/Q1)

Impact of renewable energy on natural gas demand

Renewable energy initiatives are significantly impacting natural gas demand. Companies like DTE Energy and SoCalGas are investing in renewable natural gas and aiming for substantial emissions reductions, while Edison International notes that clean energy policies are phasing out natural gas usage. This shift indicates a declining demand for traditional natural gas.

"DTE Energy also aims to help DTE Gas customers reduce their emissions by approximately 35% by 2040 by increasing energy efficiency, pursuing advanced technologies such as hydrogen and carbon capture and sequestration, and through the CleanVision Natural Gas Balance program which provides customers the option to use carbon offsets and renewable natural gas." --- (DTE, sec filing, 2024/Q1)

"While we may see a few pennies impact again next quarter, we expect gas infrastructure's earnings growth to be effectively flat going forward as we continue to allocate more capital on a relative basis to renewables, storage and transmission. Similar to what we saw this quarter, the increased contributions from new investment driven by the strength of our renewable development program are expected to more than offset any slowing in gas infrastructure growth going forward." --- (NEE, earning call, 2024/Q2)

"The decrease is reflective of and aligned with state and local clean energy future policies driving the phase-out of the use of natural gas." --- (ED, sec filing, 2024/Q1)

"In support of that mission, SoCalGas aspires to achieve net-zero greenhouse gas emissions in its operations and delivery of energy by 2045 and to replace 20 percent of its traditional natural gas supply to core customers with renewable natural gas (RNG) by 2030." --- (SRE, press release, 2024/05/23)

"We are also making significant investments to transform the way we produce power as we shift towards renewables and natural gas and away from coal generation." --- (DTE, earning call, 2024/Q2)

Geopolitical factors affecting natural gas supply

Geopolitical factors are significantly influencing natural gas supply, with projections indicating a demand increase driven by technological advancements and energy transition policies. EQT's strategic acquisitions and infrastructure enhancements position it to meet this growing demand, while market volatility is expected to further drive natural gas product demand.

"Our base case view suggests the proliferation of data centers, along with growth in other electricity-intensive markets, such as electric vehicles, to drive an incremental 10 Bcf per day of natural gas demand by 2030, while there is a plausible upside case that could take this." --- (EQT, earning call, 2024/Q1)

"to closing the Equitrans acquisition and will finally allow EQT to provide much-needed natural gas to consumers in the Southeast region to meet growing power demand, displace coal and improve grid reliability." --- (EQT, earning call, 2024/Q1)

"in other electricity-intensive markets, such as electric vehicles, to drive an incremental 10 Bcf per day of natural gas demand by 2030, while there is a plausible upside case that could take this number up to 18 Bcf per day." --- (EQT, earning call, 2024/Q1)

"That's one way they can protect their supply and protect their business. And that just is going to mean that we think this volatility is going to drive more in base and demand for natural gas products." --- (EQT, earning call, 2024/Q2)

"To put the significance of our combined companies into perspective, EQT's assets now encompass nearly 2 million acres of leasehold, producing more than 6 Bcfe per day with almost 4,000 low-cost remaining drilling locations, more than 2,000 miles of gathering lines with greater than 8 Bcfe per day of throughput, nearly 500 miles of water lines, 43 Bcfe of natural gas storage, 800,000 horsepower of compression, almost 950 miles of critical transmission infrastructure, plus the newly commissioned 300-mile Mountain Valley Pipeline, all of which are located at the Gateway of Appalachia, and ideally positioned to serve growing U.S. and international natural gas demand for decades to come." --- (EQT, earning call, 2024/Q1)

Infrastructure developments and regulatory impacts

Infrastructure developments and regulatory compliance are crucial for the natural gas sector. Companies like PPL and WMB emphasize strategic investments to enhance reliability and meet energy security needs, while KMI highlights the significant costs and operational challenges posed by regulatory changes.

"With this in mind, we're focused on enhancing the reliability and resiliency of our electric and gas networks through innovation and strategic infrastructure investments, advancing the clean energy transition reliably and affordably for our customers, delivering operational efficiencies to support affordability, building scale to enable our strategy and drive sustainable growth for stakeholders and empowering customers through digital solutions and better customer service." --- (PPL, event transcript, 2024/05/15)

"We've built a durable business positioned for the future and we're leveraging our existing infrastructure to serve rising domestic and global energy security needs while lowering emissions and creating sustainable value for our shareholders." --- (WMB, event transcript, 2024/04/30)

"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)

"And as we focused on investing in a safe, reliable, affordable and cleaner energy future, we executed $2,400,000,000 of planned energy future, we executed $2,400,000,000 of planned infrastructure investments on time and on budget.Rounding out our 2023 highlights and progress, we secured constructive outcomes in key regulatory proceedings, outcomes that will benefit both customers and share owners." --- (PPL, event transcript, 2024/05/15)

"And I think they're trying to do the very best to see responsible infrastructure get developed, and they realize it's very clear to them the kind of challenges that we're going to have on the grid if we don't have natural gas supplies available to provide incremental power supplies on the one hand and backing up renewables on the other." --- (WMB, earning call, 2024/Q2)

Future projections for natural gas supply and pricing

Future projections for natural gas supply and pricing indicate a trend of decreasing prices due to high inventory levels and lower demand. Companies like ExxonMobil and Chevron report flat revenues and declining realizations, suggesting that current pricing pressures may continue to influence future market dynamics.

"Natural gas prices decreased, moving back toward the middle of the 10-year range, on high inventory levels and lower demand." --- (XOM, sec filing, 2024/Q1)

"Sales and other operating revenues for the six-month period were relatively flat as higher U.S. crude oil and natural gas sales volumes and crude oil prices were mostly offset by lower natural gas and refined product prices." --- (CVX, sec filing, 2024/Q2)

"Upstream Year-to-Date Earnings Factor Analysis (millions of dollars) Price – Price impacts increased earnings by $570 million, driven by an increase in average realizations for crude oil, partially offset by a decrease in average natural gas realizations." --- (XOM, sec filing, 2024/Q2)

"Three Month Periods Ended March 31, 2024 and 2023 International upstream earnings decreased by $216 million primarily due to lower natural gas realizations of $730 million, partly offset by favorable tax impacts of $190 million, including the absence of first quarter 2023 tax charges related to the energy levy in the United Kingdom, and higher liquid realizations of $160 million." --- (CVX, sec filing, 2024/Q1)

"The decrease in earnings was mainly driven by declining industry refining margins and lower natural gas prices." --- (XOM, sec filing, 2024/Q1)

Technological advancements in natural gas extraction

Technological advancements in natural gas extraction are crucial for enhancing operational efficiency and reducing costs. Companies like ExxonMobil and SLB emphasize the importance of digitalization and innovative technologies, such as EcoShield™ and PowerDrive Orbit™, to achieve sustainable production and emissions reduction in the sector.

"With advancements in technology and the support of clear and consistent government policies, ExxonMobil aims to achieve net-zero Scope 1 and 2 greenhouse gas emissions from its operated assets by 2050." --- (PXD, press release, 2024/05/03)

"The initiative represents a significant advancement in digitalizing the drilling operations of Pakistan's energy sector to enhance operational efficiency, reduce costs, and promote sustainable oil and gas exploration in the country. Digital Enablement" --- (SLB, press release, 2024/04/19)

"Following the recent announcement to not pursue an increase to its maximum sustainable capacity, the country's shifting focus towards natural gas where production is now expected to increase by more than 60% through 2030, will require significant investment in gas infrastructure." --- (BKR, earning call, 2024/Q1)

"Individual projects or opportunities may advance based on a number of factors, including availability of supportive policy, permitting, technological advancement for cost-effective abatement, insights from the company planning process, and alignment with our partners and other stakeholders." --- (PXD, press release, 2024/05/03)

"Highlights include the following: In the Midland Basin, SLB received an award from Pioneer Natural Resources recognizing its work in reducing greenhouse gas emissions through use of the EcoShield™ geopolymer cement-free system and PowerDrive Orbit™ rotary steerable system." --- (SLB, press release, 2024/04/19)

Consumer behavior trends affecting natural gas demand

Consumer behavior trends affecting natural gas demand are increasingly driven by technological advancements and economic development, particularly from sectors like AI and data centers. Companies are adapting to this rising demand while ensuring reliability and affordability, highlighting the essential role of natural gas in the energy transition.

"Natural Gas Storage Operations and Reliability Natural gas withdrawn from storage is important to help maintain service reliability during peak demand periods, including consumer heating needs in the winter and peak electric generation needs in the summer." --- (SRE, sec filing, 2024/Q2)

"We believe natural gas must be a part of not just Duke's but our nation's energy transition strategy in the face of unprecedented demand from AI data centers, chips manufacturers and other economic development, natural gas remains an essential tool to provide reliable and affordable energy for customers and complements our substantial investments in renewables and energy storage." --- (DUK, earning call, 2024/Q1)

"We continue to work with data center customers to meet their increased demand, while ensuring contracts and new initiatives are fair and beneficial for all of our customers. In the fall, we will provide an update on what this large load opportunity means for our capital spend, including generation and transmission investment, and on our plan to responsibly finance this growth initiative." --- (AEP, earning call, 2024/Q2)

"At the same time, we'll continue to focus on the impacts to all customers, ensuring we have both economic contracts and system resources to provide safe, clean and reliable power to our communities.During the quarter, there were two regulatory outcomes that provide for cleaner and more resilient electric and natural gas distribution system, First, Colorado passed a bill that enables qualified electric utilities to make necessary distribution investments with timely recover to achieve state policy goals, including transportation and building electrification and enabling distributed energy resources." --- (XEL, earning call, 2024/Q2)

"The proposed LNG export terminal would be supplied with U.S. natural gas and would use excess capacity on existing pipelines in Mexico with the intent of helping to meet growing demand for natural gas and LNG in the Mexican and Pacific markets." --- (SRE, sec filing, 2024/Q2)