With practically 3Q24 coming to a close, we want to take a moment to review some of the main trends for the upcoming months, understand the potential impacts they may have on the markets, and seek actionable strategies on specific companies to make the most of it
Regarding the trends for the upcoming months, since the range of possibilities is really broad and even some depend on others, we want to focus on 3 topics to understand their current situation and potential outcomes:
U.S. Elections
Situation of Natural Gas (Primarily Henry Hub and TTF)
Central Banks (Interest rates) and Major Currencies.
Similarly, we review the companies in our universe, where we have published an L/S investment thesis, target prices and financial models, and we discuss which ones seem most interesting in each of the different scenarios, the strategies we are using to try to achieve the greatest upside possible with a fairly controlled risk and some new ideas that we think are worth analysing.
Situation of Natural Gas industry
September has been a very volatile month for Natural Gas. In Europe, after a summer of price increases, storage capacity reached 90%, and the price, driven more by institutional speculation than by fundamentals, dropped by more than 15%, only to recover later and end the month practically flat (relative to the usual volatility of Natural Gas). On the other hand, in the United States, the price steadily gained ground throughout the month.
Let’s take a closer look at the reasons:
Europe: Despite European gas storage levels reaching 93%, there is growing concern that this will not be enough to cover the continent’s energy needs through the winter. A colder-than-expected autumn has heightened demand earlier than usual, placing pressure on reserves. Additionally, Europe’s reliance on imported gas is being further challenged by Norway’s extended maintenance work at the Skarv and Sleipner facilities, which has temporarily reduced Norwegian gas flows to the continent. The situation is further complicated by Ukraine’s seizure of the Sudzka hub, a critical part of Russia’s gas transit infrastructure, and Russia’s bombing of Ukrainian power plants, which adds more risk to the overall energy situation in Europe. The end of Russia’s gas export contract via Ukraine to central European customers marks a significant shift, as this route has been a traditional artery for European gas imports. As a result, European gas prices have reversed the drop of the first weeks of September, with growing uncertainty about how the region will cope with the coming months, especially given the limitations of domestic storage and supply sources.
Middle East and Russia: The natural gas market in the Middle East is under threat due to escalating tensions between Israel and Hezbollah in Lebanon. As the region stands on the brink of an all-out war, the risk to vital offshore natural gas fields, which supply Israel, Egypt, and Jordan, has risen. Any disruption in these fields could have significant repercussions not only for local energy needs but also for global markets, as the region’s gas supply plays a crucial role in stabilizing regional energy flows. The geopolitical volatility in the Middle East is adding another layer of uncertainty to the global natural gas supply chain, contributing to price volatility in Europe and beyond.
Moreover, complex gas swap deals involving Azerbaijan and Russia are becoming increasingly doubtful due to inadequate pipeline capacity, raising concerns about future supply. With Russian pipeline gas already greatly reduced, European demand for U.S. LNG has surged, adding further pressure on the global supply chain.
United States: The U.S. gas market has faced a combination of supply disruptions and increased demand projections. The recent Hurricane Francine in the Gulf of Mexico has curtailed natural gas supply, which is a key production area for the U.S. and global markets. This disruption follows a period of warmer-than-usual temperatures in parts of the country, exacerbating supply tightness. Furthermore, the Federal Reserve’s recent rate cut has sparked expectations that industrial demand for natural gas will increase, as cheaper borrowing costs tend to boost industrial production, driving higher energy consumption. This combination of supply constraints and rising demand has contributed to price increases, influencing global markets as the U.S. is a significant exporter of LNG.
In addition to all this,