| | | | Natural Gas Might Make A Run
Wall Street is betting big on natural gas as we gear up for the second half of this year.
It's no secret that I'm bullish on energy, but natural gas is one area of energy that hasn't done all too well this year. Year to date, natural gas is down roughly 30%.
This came amid a glut in supply and a more-temperate-than-expected winter.
Analysts at JP Morgan are predicting natural gas to be the best performing commodity this year, even better than gold.
But how can something that’s down 30% make a recovery in 7 months to become the best performing commodity of 2024?
The answer, artificial intelligence (AI).
Analysts are seeing a major upside for the commodity going into the end of the year, largely due to the growing demand for electricity from artificial intelligence.
AI and Natural Gas
Environmental initiatives are pushing for renewable sources of energy to be the fuel that powers AI data centers.
In 2023, AI data centers (think of a warehouse full of servers) grew by 26% alone. And these are costly buildings to run with high energy demands. They require constant running of the computers, cooling systems, and AC units to keep the temperature low in these facilities.
But, with that being said, renewable power sources are just simply not substantial enough to provide the power necessary to sustain these data centers.
Power providers and AI companies both know that and it’s why they’ve been looking to natural gas as a cost-effective solution.
Data centers are expected to use 11 gigawatts of power this year. By 2030, that number is expected to grow to at least 42 gigawatts. That’s a near 4X increase in power consumption over the next 6 years and it must come from somewhere.
Here’s what JP Morgan analysts are saying:
"The rapid ascent in AI usage is a boon to US natural gas consumption, and its impact should be seen already this summer.
The fact remains that there are various disconnects within the US power grid that will likely make it difficult — namely through transmission — for renewable energy to satisfy a majority of this growth in demand.
This is where natural gas is already filling the void as it continues to play its part as a transition fuel.”
We are also seeing similar statements from Goldman Sachs as well, with their analysts sharing:
“Driven by AI, broader demand and a deceleration in the pace of energy efficiency gains, global data center power demand is poised to more than double by 2030 after being flattish in 2015-20.
We believe supporting data center driven load growth will require investment by Utilities of $50 bn in new power generation capacity. We assume a 60/40 split between gas and renewables.”
So, what does this mean for us as traders?
We have a new set of investments to start keeping our eyes on ahead of the second half of this year; natural gas.
Whether that be mining companies, processing companies, or the commodity itself, natural gas is one to watch.
And many of you already know I am very bullish on the energy sector. As I shared yesterday, we are positioned in a higher cost environment economically.
More than likely, as utilities and expenses continue rising, and domestic energy mining halts, we will see energy prices continue to rise purely from a supply and demand basis.
Then we layer on the fact that these rapidly expanding AI data centers rely heavily on natural gas, and it becomes clear why some of Wall Street’s biggest firms are betting big on natural gas. | | | | |
|
|
0 Response to "Natural Gas Might Make A Run"
Post a Comment