Interview: Geopolitics/Macro - Energy Achilles' Heel Discussion on Monetary Matters
Glad to be back with Max Wiethe on Monetary Matters to discuss my recent piece about the US Energy Achilles' Heel and the shift in hydrocarbon dependency from oil to natural gas.
Glad to be back with Max Wiethe on Monetary Matters to discuss my recent piece about the US Energy Achilles’ Heel and the shift in hydrocarbon dependency from oil to natural gas.
As always, please see my Show Notes thread that follows.
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Show Notes:
Venezuela Discussion
We start by addressing the obvious elephant in the room — the recent and unprecedented US capture of Maduro.
Oil Supply/Demand Singularity
The elusive Oil Supply/Demand Singularity keeps getting pushed out and may never come. I wrote this thread a couple years ago, and it is even more relevant now with the Venezuela developments and the shifting hydrocarbon dependency from oil to gas:
We spoke about the conundrum facing public Oil & Gas companies in this “No Man’s Land” of WTI in the mid-$50’s. Capital discipline is not quite what people think it is even in the current environment. This is a big reason why I worry about Capital Reallocation risks.
Was Venezuela an echo of the Trump Rug-Pull of 2018?
We talked a bit about how MbS of Saudi Arabia might not be happy with the recent defenestration of Maduro.
I wrote about all of these lessons here:
The Method to the Madness of Trump 2.0
I wrote two key pieces last year explaining the “method to the madness” of the Trump 2.0 Playbook:
I coined the term “Reverse Marshall Plan” here:
To get to the Holy Grail of Disinflationary Growth from a pre-existing Inflationary backdrop, the Trump 2.0 Playbook must bring about Deflationary levers, and chief among them has been the hammer on Oil prices.
The Shifting Hydrocarbon Dependency from Oil to Natural Gas
The irony is that America has been and continues to shift its Hydrocarbon Dependency from Oil to Natural Gas.
My Bullish Natural Gas Thesis is predicated about 3 primary pillars:
“Premature Electrification” — you heard it here first!
AI Data Center Land Grab
LNG Export Demand
We delve into the thesis in detail.
You can follow along here:
All roads lead to Natural Gas as the “lowest hanging fruit” for Reliable Base Load Generation from both a cost advantage and time-to-market advantage.
“If Natural Gas is claiming a growing share of electricity share with flat electricity growth, what happens when electricity growth itself spikes?”
“US will need to add the equivalent of 15 New York Cities' worth of Peak Load (~160 GW) by 2030.”
Minerals Discussion
We delve into a detailed discussion about this asset class and why I favor it for playing the Natural Gas thesis:
Lower Oil can actually exacerbate the Natural Gas crunch because of loss of Associated Gas:
Hyperscalers are currently looking at all Base Load alternatives, but I believe the Debt Governor of debt-financed AI Data Centers will force the spotlight on ROIs, and that in turn will benefit Natural Gas most because of its time-to-market and cost advantages:
“I don’t expect a smooth transition to this New Regime at all, but I think we are likely to see a series of higher highs and higher lows — a Secular Bull Market characterized by a rising “sawtooth” with weather volatility continuing but at lower and lower levels as the Global Arbitrage begins to open up by the end of the decade.”
Minerals acquisition discipline and creating reserves below < $2/mmBTU is the key to risk mitigation, because Henry Hub has never historically stayed below $2 for a protracted period of time, even without the current tailwinds:
Mineral Rights are true “Perpetuity Options,” and this makes the market for “Minerals Tails” liquid.
Electricity prices jumped 6.7% YoY in today's CPI number.
Guess what the hottest component in the entire report was?
Utility piped NATURAL GAS at +10.8% YoY
https://youtu.be/9k7-X_n0sLE?si=MYWu1wj-SCajEQCU