To The Moon

$Natural Gas(NGS)$

Natural gas has surged by 170% over the past year, making it one of the top-performing assets of 2024. It even broke above a key resistance level from November 2023. However, a sharp 20% drop erased the gains seen at the start of 2025. Surprisingly, the release of DeepSeek, a more efficient and cost-effective AI model, may be a contributing factor.

Natural gas currently accounts for 43% of total U.S. electricity generation, playing a crucial role in the energy sector. With AI adoption expanding rapidly—driven by its high electricity needs—natural gas has become even more essential. AI data centers currently consume around 1–2% of global power, and projections suggest this could grow by 10% annually, potentially reaching 5% of total electricity consumption by 2030. These soaring expectations have pushed natural gas prices higher.

However, the introduction of DeepSeek hints that AI models could become far more energy efficient, leading to a decline in natural gas prices. So, does this mean the trade in natural gas is over?

Electricity demand is just one piece of the puzzle—supply is equally critical in determining price trends. U.S. natural gas production has recently plateaued, with output remaining flat since early 2024—an unusual shift compared to the steady growth seen since late 2021. Meanwhile, consumption has continued to rise. This divergence between supply and demand has contributed to the latest uptick in natural gas prices. If AI-driven electricity consumption increases further in the coming years, this gap could widen, reinforcing the upward pressure on prices. Historical trends from 2002, 2013, and 2021 show that similar production declines alongside rising consumption have played a key role in past price movements.

If we examine past trends in U.S. natural gas prices, we see a familiar pattern—during previous periods of declining supply and rising demand, prices surged significantly. The relationship between supply, demand, and price is straightforward: when production declines while demand stays steady or increases, prices tend to rise. Conversely, when supply outpaces demand, prices typically fall. This cyclical nature of natural gas is evident in its price chart dating back to 2008.

By analyzing past cycles, we can estimate potential future price movements. The time span between major price bottoms has typically ranged from 200 to 210 weeks—such as from 2020 to 2024 and from 2016 to 2020. However, not all cycles follow the same pattern; for instance, the 2009–2012 cycle was shorter, lasting just 136 weeks. If AI-driven electricity demand declines faster than expected, the current cycle may also be shorter than historical averages.

Looking at price peaks, we notice a similar cyclical pattern. Peaks from 2018 to 2022 occurred roughly 198 weeks apart, while previous cycles lasted between 200 and 250 weeks. If the current cycle follows this historical range, the next major peak could occur between June 2026 and June 2027—after which rising prices may trigger increased supply, eventually pulling prices lower again.

While production cycles offer a broad framework, demand ultimately dictates how high prices can rise. Electricity generation accounts for about 30% of natural gas usage, but industrial demand plays a significant role as well. Unlike electricity, industrial consumption hasn’t yet seen a major AI-related boost. One way to gauge industrial demand is by tracking oil prices, another key energy source for the sector. While oil prices have ticked up slightly, they remain relatively low, signaling weak global energy demand. Historically, major natural gas price surges have aligned with rising oil prices.

The current divergence—where natural gas prices rise while oil prices remain weak—is unusual. Over the past decade, liquefied natural gas (LNG) exports have made global markets more interconnected. LNG allows U.S. natural gas to be shipped worldwide, meaning domestic prices are increasingly influenced by global supply and demand. Since becoming the world’s top LNG exporter in 2023, the U.S. has felt these international market forces more than ever.

The recent rally in natural gas prices has likely been driven by AI-related electricity demand projections. However, as discussed earlier, DeepSeek’s new AI models suggest these energy forecasts may have been overly optimistic. For the bull run in natural gas to continue, oil prices would likely need to rise, confirming a broader recovery in global energy demand. A rebound in manufacturing and economic activity, particularly in key markets like the U.S. and China, could support this outcome. However, if oil prices remain subdued, they could pose a risk to natural gas prices in the near term.

From a technical perspective, natural gas is currently in an uptrend, trading well above its 100-, 150-, and 200-day moving averages—though it remains near a key resistance level. Even during strong bull markets like 2020–2022, natural gas prices periodically pulled back to test these moving averages. We will continue to monitor these market trends.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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