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The U.S. is shipping more natural gas than ever overseas, which is keeping domestic inventories lean and power prices high.
Natural-gas prices usually decline into spring, when heating demand drops but before air-conditioning season begins. Gas producers and traders use the off-season to build up inventory for summer, socking away fuel in storage facilities until the weather turns and demand and prices rise.
This year prices climbed into spring, thanks to record export volumes and promises from the White House to support the shipment of even more liquefied natural gas, or LNG, to allies across the Atlantic to supplant Russian supply.
U.S. natural gas futures for May delivery ended Wednesday at $5.605 per million British thermal units, more than double the price from a year ago. So far in 2022, natural-gas prices have risen 50%. The last time there was such a sharp run-up to start a year was in 2008, when energy prices surged ahead of the financial crisis. A deep recession and the shale-drilling boom’s bounty of fuel kept prices depressed for more than a decade after.
War in Europe is driving the recent rise, along with weather events last year that drained gas stockpiles around the world. Also, U.S. producers have been wary of torpedoing prices and sinking their profitability by drilling too much. The amount of gas in storage in the lower 48 states is 17% below the five-year average for this time of year despite production that has eclipsed pre-pandemic highs, according to the Energy Information Administration.
Just as the advent of shale drilling ushered in a domestic fuel glut that kept a lid on prices, America’s rise as the world’s most prolific LNG exporter is putting a new floor beneath them, analysts say.
“We are in a new phase for U.S. gas markets,” said Ryan Fitzmaurice, senior commodity strategist at Rabobank. He expects benchmark U.S. prices to range between $4.50 and $6, up from the $2 to $3.50 that natural gas has traded around the past several years.
That forecast is echoed by energy producers. The bulk of oil and gas executives surveyed this month by the Federal Reserve Bank of Dallas said they expect natural-gas prices to end the year between $4 and $5.50. Over much of the past decade, it took blizzards to push prices that high.
Goldman Sachs Group Inc. analyst Samantha Dart said she expects natural-gas prices of $4.50 this summer and $5.15 in winter, up from her previous forecast of $3.45 and $3.55, respectively. She said it should be 2025, however, before enough additional LNG export terminals come online in the U.S. to really tighten domestic inventories and tether prices to more expensive international markets.
“U.S. gas demand will be primarily driven by U.S. LNG export capacity additions going forward,” Ms. Dart wrote in a note to clients on Tuesday.
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Higher gas prices have contributed to inflation at home by boosting manufacturing costs for plastics, fertilizer, concrete and steel. They have also meant some of the highest electricity and heat bills in years for Americans this winter. Consolidated Edison Inc. , which provides electricity around New York City, has already passed on big price increases to customers this year and told them this month to brace for higher bills yet. “You pay what we’ve paid,” the utility said in an email to customers.
Just before the pandemic, prices dipped below $2 per million British thermal units as domestic production reached new highs. The fuel got even cheaper as economic activity was choked off, hitting its lowest price since the mid 1990s. Buyers abroad canceled LNG cargoes. Inventories swelled.
Economic stimulus and two sweltering summers brought back demand. LNG prices soared in Asia and Europe, making it more economically attractive than ever to buy U.S. shale gas, freeze it to a liquid state and ship it overseas in specialized tankers. The invasion of Ukraine, which was met with sanctions against the aggressor, has presented an urgent need in Europe to replace gas from Russia.
Last week, President Biden agreed to more than double the volume of LNG that the U.S. exports to Europe in the coming years. Europe last year imported a record from the U.S., which overtook Qatar and Australia and in December became the world’s largest exporter of LNG.
Overseas sales increased in January and, though they declined in February because fog in the Gulf of Mexico delayed cargoes, analysts expect export volumes to increase this year as new facilities ramp up output. The Energy Information Administration predicts LNG exports will average 11.3 billion cubic feet per day this year, up 16% from 2021.
In recent weeks an expansion of the Cheniere Energy Inc. terminal at Sabine Pass in Louisiana began filling tankers, as has a closely held liquefaction plant built about 50 miles to the east. Those facilities are expected to add 2 billion to 3 billion cubic feet of daily export capacity, though construction of several more export terminals will be needed to fulfill the White House’s promises to Europe.
Write to Ryan Dezember at [email protected]
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