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Energy Volatility in a Complex Global Market

by Max Stewart


Volatility in the natural gas futures market soared to record highs to kick off the month of October 2021. As such, Liquefied Natural Gas (LNG) prices internationally soared above $30/MMBtu for the first time and natural gas prices domestically are up roughly 90% year over year. A looming fear exists that natural gas availability and supply will not be adequate to meet the demands of natural gas consumers and natural gas fired power plants globally during the winter of 2021/2022.

While still a risk, reliability issues domestically in the U.S. are not as great of a threat compared to European and Asian markets. Supply concerns are less of an issue here in the U.S. because we export roughly 11 Bcf/d of LNG. Should adequate supplies be a major sticking point heading into winter, U.S. producers will have the ability to curtail export volumes and free up supplies for domestic use. The effects of the tightened global energy market are already appearing in places like China where factories are being forced to shut down or curtail operations due to a lack of fuel to produce electricity.

While prices are at record highs today, just last year we were highlighting record low energy prices globally. How did we get here? Analysts point to the following factors as being major driving forces of the energy arena over the last year:

  1. Sharp increase in demand for energy as economies opened back up post-COVID lock downs and restrictions.
  2. Capital expenditures in the energy field during 2020 sank sharply. Now that demand is here, adequate investment was not made over the last year to keep up with the demand.
  3. A cold winter globally chewed away at natural gas storage wells.
  4. Less windy than normal summer 2020. Wind turbines domestically did not produce as much energy as initially forecasted.

Volatility is expected to remain present in the year to come. The global energy crunch is apparent at the gasoline pump, and it will be noticed in many households across the country with heating bills expected to increase 50% versus last year. While much of the impacts will be out of your control, energy budgets for Atlas clients are very much in our control. By deploying a strategic plan to manage volatility, we are able to absorb increases, plan for the future, and optimize each dollar allocated towards energy for each unique client. Do you have a plan to weather the storm? Contact us or reach out directly to Max Stewart to learn more about how Atlas has proactively positioned clients to mitigate risks and minimize costs through unchartered waters.

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