Milan Cacic
September 06, 2024
Money Education Financial literacy Economy Commentary Monthly update Monthly commentary Trending Weekly update Weekly commentaryELECTRIFICATION ➡ NATURAL GAS
Every time Nvidia has a new blowout quarter in sales, it means the market is being flooded with more data centres that need to be electrified. Combine that with the increasing electrification of heating, cooking, and driving, and you begin to wonder where all this electricity is going to come from.
The US currently consumes approximately 4.2 trillion kWh (kilowatt-hour) of electricity per year, of which 60% is produced from fossil fuels (coal, natural gas, and petroleum), while the rest is produced by nuclear and renewables. For the first time in decades, electricity consumption is growing faster than production. Most of this load growth is coming from new manufacturing and industrial facilities, including large-scale development in data centres.
As you can see from the chart below, natural gas is the single biggest component of electricity generation. While renewables and storage solutions are gradually becoming more economically viable, the reality is increased capacity is needed now to meet accelerated demand. Natural gas offers the quickest, most reliable, and sustainable option for the near future.
One last note on natural gas is that oil prices have dropped, which is a positive for natural gas prices. Many oil wells also produce natural gas as a byproduct. When oil prices are high, producers focus on drilling more oil wells without much consideration for the value of the natural gas byproduct. When oil prices drop, the number of new wells drilled starts to drop, and excess natural gas is not produced. A lower supply of natural gas drives the price of natural gas higher. Combine this with the fact that we should see exports from Western Canada’s first LNG (Liquified Natural Gas) facility sometime in 2025, and you may begin to think this could be the bottom for natural gas producers. Time will tell!
I have also included the Monthly World Markets report from our CIBC Economics team entitled “The Good, the Bad, and the Fed”.
As always, if you have any questions, please feel free to give us a call at any time.
Have a great weekend.
Milan