A Looming Crisis: US Natural Gas Supplies at Risk

What You Need To Know

In a recent outlook for 2024, Michael Cembalest, Chairman of Market and Investment Strategy for J.P. Morgan Asset & Wealth Management, cast a spotlight on an urgent issue facing the United States: the stability of domestic natural gas supplies.

With an in-depth analysis, Cembalest underscored a looming crisis that could significantly impact major US cities due to the retirement of dispatchable power generation sources such as nuclear, coal, and gas, alongside underinvestment in critical infrastructure like pipelines, gas storage, and winterization measures.

According to the North American Electricity Reliability Association's 2023 risk assessment, the Midwest MISO region, spanning from Minnesota down to Louisiana, faces the greatest risk of power outages, even under normal peak conditions. This danger extends to New York, New England, and the entire Western US in more extreme weather scenarios.

The report highlights an alarming rise in peak loads driven by electrification, further exacerbated by the retirement of 80-110 GW of nuclear and fossil fuel generation by 2033—amounting to approximately 7% of the current installed capacity. This reduction in capacity, coupled with the rise of intermittent new sources of generation like wind and solar power, presents a significant challenge to maintaining reliable energy supplies.

Cembalest points out that while power outages pose significant challenges, natural gas outages could have even more dire consequences. He references the December 2022 winter storm Elliott, which led to a failure in gas production wellheads, pipelines, and distribution, causing a 16% drop in dry gas production across the lower 48 states. The situation nearly resulted in a gas system outage for Con Edison, which was narrowly averted thanks to emergency measures.

The implications of a natural gas outage are severe. Local gas distribution companies would be forced to manually shut off gas valves building by building to prevent residual gas leaks, a process that could take weeks, if not months, to reverse. In addition to the logistical nightmare, such outages could lead to extensive property damage from burst water pipes, highlighting the critical need for secure and reliable natural gas supplies.

Cembalest's analysis brings to the forefront the essential role that natural gas plays in ensuring the energy security of the United States. It underscores the need for significant investments in energy infrastructure to prevent future crises. This includes not only maintaining and expanding the current pipeline and storage capacity but also investing in the resilience of these systems against extreme weather events.

Securing domestic natural gas supplies is not merely a matter of energy policy; it is a critical component of national security and economic stability. The insights provided by Michael Cembalest and J.P. Morgan (NYSE: JPM) serve as a call to action for policymakers, industry leaders, and the public to address these challenges proactively.

Why This Is Important for Retail Investors

1. Energy costs impact personal finances: The stability of natural gas supplies directly affects energy costs for retail investors. Any disruption or shortage in the supply can lead to increased energy prices, which can have a significant impact on household budgets and expenses.

2. Property value and insurance implications: Natural gas outages can lead to extensive property damage from burst water pipes. This can result in costly repairs and can also have implications for property values. Investors who own properties or have investments in the real estate market should be aware of the potential risks and the need for secure and reliable natural gas supplies.

3. Impact on industries and investments: The availability of natural gas is crucial for various industries, including manufacturing, transportation, and power generation. Retail investors with investments in these sectors or companies reliant on natural gas can be significantly affected by the stability of supplies.

4. Economic stability and job opportunities: The energy sector, including natural gas, plays a vital role in economic stability and job creation. Investors benefit from a stable and thriving economy, as it can positively impact stock markets, employment opportunities, and overall financial well-being.

5. Investing in energy infrastructure opportunities: As the need for significant investments in energy infrastructure becomes evident, retail investors have the potential to seize opportunities for investment and growth. Investing in companies involved in pipeline construction, storage facilities, and innovative solutions for securing natural gas supplies can provide long-term investment potential.