Trade Corner

Natural Gas

by Macro D

Let's start from the end. Donald will look to the future according to the logic of the past (the one he knows best). Therefore, I expect a step back for everything that concerns the green economy and a step forward for everything that concerns the economy linked to the production of hydrocarbons; in particular, I am thinking of natural gas. Today, nerves are on edge on so many economic/political tables that there will not be the space/need for an anti-renewable energy crusade, just as there will not be a crusade in favour of producing hydrocarbons. This does not mean that there will not be someone who will find himself in the ideal conditions to take over someone else. This "someone" is always there, and at the moment, it seems to me that the next American president could fill this role.

I believe that we are heading towards an American legislature in which economic decisions, from a macro point of view, will be silenced by geopolitical events that will cause that background noise capable of silencing those sounds that, in a different macro context, would undoubtedly cause reactions of a much greater magnitude. It is not news that Trump wants to put aside investments in renewable energy, and if this were to happen, the fossil fuel sector would inevitably benefit. In short, the game is that of the blanket that is too short; if you do everything to cover your head, it leaves your feet in the cold. Therefore, lower spending on low-carbon energy will increase the demand for natural gas.

Let's get to the heart of the matter: aside from Donald (the great puppeteer), who in his administration will deal with these issues? Scott Bessent, the man who had no problem putting down on paper his targets to be achieved: 1) 3% economic growth, 2) a cut in the budget deficit equal to 3% of GDP by the end of the administration's work, 3) an increase in US energy production.

Question: Can this increase in domestic energy production be achieved by leveraging the increasingly complicated output of crude oil? I don't think so.

But why do I look to natural gas with renewed confidence? Meanwhile, the US natural gas market is poised to enter a new cycle of demand growth thanks to increased LNG exports and rising electricity demand. It is no coincidence that US grid planners – utilities and regional transmission operators (RTOs) – have virtually doubled growth projections in their five-year demand forecasts. For the first time in many years, US electricity demand is expected to grow by up to 15% over the next decade, benefiting from the explosion of artificial intelligence (AI) and cryptocurrencies. In a global market that has just entered the logic of an idea so far from the one followed to date, we must proceed with caution and with the typical caution of those who fear what may be around the corner. I do not believe world markets are ready for an out-of-scale (exaggerated) increase in energy production from the so-called green economy to the detriment of the traditional economy (hydrocarbons). I believe that the markets (made up of human beings) have recognized the need to testify that this transaction will have to be in an undeciphered future. Still, they are not ready to put the signatures on paper and make this transition concrete. So, what do we do? If we consider the issue with the eyes of the green narrative, we must start from what is most harmful, namely oil, and then move on to what is less dangerous, namely natural gas. Good. I have the feeling that the soul of the world is getting used to the idea of ​​an economy that sooner or later will have to do without oil, but at the same time, this soul of the world is not yet ready to rely exclusively on a green economy, so what is left?

Let’s dig in.