War in Iran Is Redrawing the Map for Natural Gas

SPEAKER_2 (0:02)

Bloomberg Audio Studios, podcasts, radio, news.

Joe Weisenthal (0:18)

Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.

Tracy Alloway (0:22)

And I'm Tracy Alloway.

Joe Weisenthal (0:24)

So Tracy, you know, the war in Iran is primarily, at least from a commodity standpoint, being understood as like an oil shock. That's the number that most people are paying attention to.

Tracy Alloway (0:32)

That is the headline, sure.

Joe Weisenthal (0:34)

But as we know, from multiple episodes we've already done, it's not just an oil region. And of course, we've been talking about fertilizer in one of our episodes. We did the episode on other sort of dry vault commodity shipping that's affected by the closure or the almost closure of the Strait of Hormuz. There's plenty there. It's not just an oil story.

Tracy Alloway (0:52)

Yeah, the one silver lining of all of this, I guess, is that we're all becoming commodities, supply chain commodities experts and petrochemicals as well. I should just say we're recording this on March 17th because who knows what's going to happen by the time this episode comes out. But one of the big headlines today is that Iran has just struck one of the big gas fields in the UAE, which is the Shaw Field in the empty corridor area, and it's on fire. So pretty dramatic footage, which definitely does tend to concentrate your mind on one particular commodity, which is gas.

Joe Weisenthal (1:28)

Well, there's two dimensions of the supply chain disruption, isn't there? Because there is the fact that for the most part, there are very few vessels going through the Strait of Hormuz and people are wondering, when will that open again? But then there's the other question of, as you just mentioned, there's a lot of damage to core infrastructure of various sorts. And so setting aside when the Strait opens, how badly will the production infrastructure be impaired and how long will that go on? That's a sort of separate dimension besides just the passing of the ships.

Tracy Alloway (1:59)

Right. And I think Natgas in particular have these sort of geopolitical connotations even before the war with Iran. We're all used to thinking about big strategic pipelines and thinking about potential disruptions to those. Back when Russia invaded Ukraine, there was obviously a European gas crisis. And so everyone's kind of worried about Europe once again.

Joe Weisenthal (2:20)

Yes.

Tracy Alloway (2:20)

There's a lot to discuss.

Joe Weisenthal (2:22)

Totally. I saw a headline today also on the train here talking about how like Pakistan is very serious. Like they have like a month of Natgas right now and they're heavily dependent on gas from the region. Of course, the fertilizer story as we learned, Urea downstream from Natgas, etc. Anyway, last year, we did our live episode with one of our favorite commodities guests, Bob Brackett. I recall as we were walking out of the theater, I was like, Bob, we got to have you back on just for like an episode. Let's pick a commodity. He said, next time I'm on, let's talk about Natgas. I was like, all right.

Tracy Alloway (3:01)

It turns out that now is the perfect time for the perfect guest.

Joe Weisenthal (3:04)

The perfect time for the perfect guest. We are going to be speaking with Bob Brackett, Managing Director and Senior Research Analyst covering North American oil and gas exploration and production and global metals and mining at Bernstein Research. So Bob, thank you so much for coming back on Odd Lots.

Bob Brackett (3:20)

Thanks for having me, Joe. Thanks for having me, Tracy.

Joe Weisenthal (3:22)

When I said we should do an episode on one commodity, at that time, why do your mind immediately go to Natgas? Was that the big story in your mind?

Bob Brackett (3:30)

So one, and I've told clients this, I am most useful when I am least loved. And the problem with being a cyclical commodity analyst is everyone will ask me about whatever is the highest on the screen. That's the thing that's going to mean revert lower. The money has already been made there. And therefore, you should be looking at the things that no one's really talking about. So I would argue today, Henry Hub, US Natural Gas, not the LNG stuff that's shut in, not other commodities, Henry Hub is unloved, sitting at $3 an MCF while we have all of these underlying demand drivers in the US. So it's the forgotten molecule today.

Tracy Alloway (4:10)

The forgotten molecule. I like that. But just broadly though, you were pretty spot on when it came to Nat Gas because I remember last year, you turned bullish after like 15 years of being bearish, something like that. So I know you're too modest to say that you got that call correct. But directionally, things seem to be going your way.