Ann: Notice of General Meeting, page-2

Are we being 'duded'?
"North American natural gas is the cheapest energy molecule on the planet by as much as 75%. Over the next twelve months, we believe this discount could close entirely, boosting US gas prices as much as four-fold. As we go to print, Henry Hub gas costs $3.00 per mcf while European and Asian gas is $14 and $16.50 respectively. One barrel of oil contains between six and eight mmbtu, so dividing oil by the midpoint of seven generates its energy-equivalent price of $10 per mcf.Today’s discount is nothing new; North American gas has traded 60-80% below world prices for nearly a decade with good reason. The shale gas revolution tilted the North American natural gas market in structural surplus. Since 2005, the US gas supply doubled from 54 to 104 bcf/d. Conventional production fell by 56% from 50 to 22 bcf/d, while shale production ramped to over 80 bcf/d – or 80% of total supply. The United States would have faced an acute gas shortage without the shales as conventional natural gas production had declined steeply. Instead, surging shale gas production produced a prolonged (and huge) disconnect to world prices. However, our models tell us that the shales are likely plateauing and the discount to world prices will narrow quickly and most likely disappear.

"Cheap US gas has caused demand to surge. Gas-fired electricity generation increased by 127% from 14 to 33 bcf/d, while industrial use increased by 20% or three bcf/d. Most notably, the United States went from being one of the world’s largest gas net importer, at two bcf/d per day, to the largest net exporter, at 12 bcf/d per day – a swing of 14 bcf/d. Despite the surge in new demand, shale supply continued to outpace consumption and the market remained stuck in a structural surplus. Between 2005 and 2023, rolling twelve-month US natural gas inventories (to adjust for seasonality) increased by 50% from 2 tcf to 3 tcf.

"Given such strong demand, if shale production ever faltered, the discount between US and world prices would close quickly, what we call convergence. Our models suggest the North American gas market will switch from structural surplus to structural deficit in six months. The results would be profound. The US consumes 90 bcf/d domestically; a move from $3 to $10-12 would cost US industry and consumers a combined $350 bn, or 1% of GDP.