Investors Flock Back to Natural Gas as Demand Soars

From indispensable bridge fuel to dirtier than coal, natural gas has gone through a few turbulent years recently, culminating in the EU’s risky legislation that could see it left out in the cold and dark, and investors’ newfound—or newly remembered—appetite for investments in gas.

In the final year of his term, President Biden imposed a moratorium on new LNG export capacity, based on a study by a researcher who claimed that LNG production resulted in more emissions than burning coal. This was perhaps meant to drive investors away from the commodity, like so many studies before it. But it didn’t. Global demand for natural gas has been growing quite healthily, despite the surge in alternative energy sources.

Earlier this year, Infrastructure Investor reported that investors, previously focused on things like wind and solar, were returning to natural gas, sensing which way the demand winds were blowing. The publication quoted sources from the financial services industry as reporting a change in sentiment among investors as the realization dawns that the world will not be moving away from hydrocarbons and into wind and solar but would rather be adding new sources of energy to the older ones.

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More recently, Ninepoint Partners portfolio manager and frequent energy markets commentator for the media, Eric Nuttall, indicated this sentiment has only grown stronger. “We see very strong demand drivers and also challenges to meaningfully growing supply over the short term,” he told Bloomberg this week, noting that his company’s energy fund has 27% oil exposure but 60% exposure to gas.

The distribution of investments reflects a reality that those claiming natural gas was even dirtier than coal because it is made up mostly of methane have trouble swallowing. That reality is that natural gas burns more cleanly than coal, is relatively affordable, and abundant enough to secure baseload generation for what many say is the AI age where demand for electricity from Big Tech will soar.

It is no accident that Big Oil is reorienting itself more towards natural gas, while staying in the oil game, of course. Yet oil majors have all signaled they have special plans for gas. Shell, for instance, said earlier this year it would make LNG a priority for the next ten years. CEO Wale Sawan said LNG would be the company’s “biggest contribution to the energy industry” in the period. BP is making plans for both oil and gas production growth, revising its peak oil demand projection by five years.

Exxon recently warned the European Union it would have to suspend sales of natural gas to the bloc unless it canceled a draft legislation that would require producers to track every molecule to make sure it was extracted and liquefied responsibly, taking into account emissions and making sure they are as low as possible. Exxon—and other LNG sellers—are in a good negotiating position: the EU has been breaking records in LNG imports since 2022, even as it tries to move away from the commodity. Germany this year saw the highest volumes of gas-fired generation since 2019.

Australia’s Woodside Energy recently said it expected its sales of crude oil and natural gas to rise by some 50% by 2032, driven by growing demand for energy, which the company sees at 6% annually over the next five years. TotalEnergies lifted the force majeure on a massive LNG project in Mozambique even though observers warn that the security situation in the area remains unstable. Natural gas, in short, is back, and everyone now loves it. All it took for this to happen was the threat of shortage as data centers started popping up everywhere, straining grids and exposing the shortcomings of what so many thought would replace natural gas in power generation: weather-dependent, variable wind and solar.

By Irina Slav for Oilprice.com

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