Gasonomics: When Natural Gas Prices Play the Butterfly Effect

The volatility of natural gas prices serves as a stark reminder of the intricate web that is the global energy landscape and its profound impact on markets. For big companies like Dow Inc (NYSE: DOW), NextEra Energy Inc (NYSE: NEE), and Air Products & Chemicals, Inc (NYSE: APD), price volatility is more than just headlines, it affects their business plans, investments, and profits. MCF Energy Ltd (TSXV: MCF) (OTCQX: MCFNF) (FRA: DC6) aims to help.

With the growth of renewable energy and varied power sources, we could assume energy price shocks are becoming less common. Yet, surprises continue to unexpectedly occur. Just last week a potential LNG plant strike in Australia threatened to increase volatility in European gas prices due to worries about competition between Asian and European buyers for LNG cargoes. For Dow, stable access to natural gas – a key feedstock for many chemical processes – is paramount. Even with its push into green hydrogen, NextEra Energy is reliant on natural gas, and Air Products & Chemicals’ business is influenced by natural gas availability and pricing.

The European energy crisis isn’t over and MCF Energy Ltd (TSXV: MCF) (OTCQX: MCFNF) (FRA: DC6) is preparing to help limit the fallout. In its review of large-scale natural gas exploration prospects in the region, MCF Energy identified the Welchau anticline prospect as a high-priority opportunity for Europe’s energy security. Now, the Mining Authority, representing Austria’s Ministry of Finance (BMF), has granted a drilling permit for the Welchau-1 well, following detailed documentation, expert assessments, and a public hearing at the proposed site.

This permit authorizes the drilling, testing, and potential extended production testing of the Welchau-1 well. MCF Energy in collaboration with ADX Energy Ltd anticipates commencing well site construction in the fourth quarter of 2023, immediately followed by drilling operations. According to an independent audit by Gaffney Cline the Welchau-1 well prospect could potentially hold 644.6 BCFE (Billions of Cubic Feet Equivalent) or 107 MMBOE (Millions of Barrels of Oil Equivalent) of best mid-case prospective resources, 20% of which is net to MCF Energy.

Fluctuating natural gas prices have a significant effect on chemical company Dow Inc (NYSE: DOW) because it uses natural gas as a key feedstock in the production of various chemicals, plastics, and other products. When natural gas prices soar, the cost of producing these chemicals and plastics also rises, impacting profitability. This can in turn affect its decision-making process and ability to forecast.

In a bid to reduce its emissions, Dow is progressing towards creating the world's first net-zero carbon emissions ethylene cracker and derivatives site in Fort Saskatchewan, Alberta, Canada. It has engaged Fluor for engineering, procurement, and construction management, and chosen Linde to supply clean hydrogen and nitrogen. Upon completion, the project will reduce Dow's global ethylene carbon footprint by 20% and increase its polyethylene capacity by 15%.

NextEra Energy Inc (NYSE: NEE) recently reported second-quarter results that exceeded Wall Street expectations, benefiting significantly from its renewable energy division. The company's successes came in part due to policy support from the 2022 U.S. Inflation Reduction Act, which advocated for reducing carbon emissions. Moreover, the surge in natural gas prices in 2022 after Russia's cutback on European supplies further benefited NextEra.

To concentrate entirely on renewables, NextEra Energy Partners announced in May its plans to sell its natural gas pipeline assets, aiming for true zero carbon emissions by 2025. Meanwhile, Florida Power & Light, the company's regulated utilities division, welcomed 66,000 additional customers, and NextEra Energy Resources introduced 1,665 megawatts of fresh renewables and storage projects in the second quarter. RBC Capital Markets analyst, Shelby Tucker, noted the impressive performance of NextEra’s wind resources.

Air Products & Chemicals, Inc (NYSE: APD) has been a leading industrial gases company for over 80 years, concentrating on energy, environmental, and emerging sectors. It stands on two sustainability-driven growth pillars. Its primary business offers vital industrial gases, equipment, and application expertise to multiple sectors, including refining, electronics, and food. Additionally, it undertakes significant industrial gas and carbon-capture projects, providing vast amounts of clean hydrogen for transportation and the broader energy shift.

APD leverages natural gas as a feedstock for certain chemical processes. Therefore, volatile natural gas prices affect Air Products & Chemicals in several ways. For instance, natural gas is essential for hydrogen production via steam methane reforming (SMR). Additionally, the company is a global leader in supplying liquefied natural gas technology, equipment, turbomachinery, membrane systems, and cryogenic containers.

As discussed, Dow, NextEra Energy, and Air Products & Chemicals, are all affected by volatile natural gas prices, and MCF Energy sees a way to help Europe stabilize its natural gas prices going forward. The approval from Austria’s Mining Authority to give the go-ahead to drill and test the Welchau-1 well is a reassuring first step in making this happen as natural gas price volatility continues to threaten markets.

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