LNG

The prices of liquefied natural gas on global markets increased to their highest in 2021 in Europe while the spot LNG cargo price for North Asia rose over the $13.00 per million British thermal units level amid oil market concern about US supplies as the differential between North Sea Brent crude and US oil narrowed to well under a dollar.

US natural gas resources are so abundant even amid growing LNG exports and pipeline supplies to Mexico that the government says that the 
Lower 48 states will end the winter heating season with 12 percent more inventory than the previous five-year average.

Working natural gas in storage will end the 2019-2020 winter heating season from November 1 to March 31 at 1,935 billion cubic feet.

“This increase is the result of mild winter temperatures and continuing strong production,” said the Energy Information Administration in its latest short-term energy outlook.

The EIA then forecasts that net injections during the refill season from April 1 to October 31 will bring the total working gas in storage to 4,029 Bcf, which would be the largest monthly inventory level on record.

Year-over-year growth in dry natural gas production offset the growth in exports, especially of LNG, throughout 2019.

“On October 11, 2019, the total natural gas in storage surpassed the previous five-year average - an indicator of typical storage levels - for the first time since mid-2017,” added the report.

The report said it expected withdrawals from working natural gas storage to total 1,790 Bcf at the end of March 2020. 

“If realized, this would be the least natural gas withdrawn during a heating season since the winter of 2015-2016, when temperatures were also mild,” said the EIA.

Injections into and withdrawals from natural gas storage balance seasonal and other fluctuations in consumption. 

Natural gas demand is greatest in the winter months, when residential and commercial demand for natural gas for space heating increases. 

However, natural gas consumption in the power sector is greatest in summer months, when overall electricity demand is relatively high because of air conditioning.

The EIA expects the total working natural gas in storage will exceed the previous five-year average for the remainder of 2020, despite declines in dry natural gas production, increases in natural gas consumption in the electric power sector, and increases in natural gas exports. 

“Monthly natural gas production is expected to decline in 2020 from last year’s record levels as lower natural gas prices reduce incentives for natural gas-directed drilling and as lower crude oil prices reduce incentives for oil-directed drilling and associated gas production,” the report explained.

The United States will remain the world’s largest natural gas producer throughout the period through 2050, reaching 43 trillion cubic feet per annum, a nearly 50 percent increase from now with US shale-gas resources continuing to expand in the Appalachian region and in formations in and around Texas.

According to the International Energy Outlook 2019 just released by the US government, Middle East natural gas production increases 15 Tcf from 2018 to 2050, reaching 37 Tcf per annum in 2050, an increase of around 70 percent.

After 2030, countries in the Middle East increase production of low-cost, abundant hydrocarbon resources to meet growing demand worldwide.

“Natural gas production in Russia is forecast to increases about 40 percent during the projection period, reaching 34 Tcf in 2050 and most of the increase is exported to Asia and Europe,” said the US Outlook.

Canada also continues to produce relatively large amounts of natural gas per annum, reaching 6.8 Tcf in 2050, a nearly 20 percent increase from 2018.

World natural gas consumption increases more than 40 percent from 2018 to 2050, with growth in non-Organization for Economic Co-operation and Development countries outpacing growth in the OECD, which groups the 36 wealthiest countries.

The US report said that global natural gas consumption increases by 2050 to a total of nearly 200 quadrillion British thermal units (Btu).

“Natural gas use accelerates the most in countries outside of the OECD to meet demand from increased industrial activity, natural gas-fired electricity generation and transportation fueled by LNG,” said the report.

“Natural gas consumption in non-OECD countries grows from about 70 quadrillion Btu in 2018 to 120 quadrillion Btu in 2050, a 70 percent increase,” stated the Outlook.

Despite strong growth in LNG trade, natural gas pipeline flows continue to account for most of the inter-regional natural gas trade during the projection period as pipeline infrastructure is further developed around the world.

“Non-OECD Europe and Eurasia (primarily Russia) remains the largest net exporter of natural gas in 2050, followed by the Middle East. During this time, OECD Europe increases its dependence on Russian pipeline natural gas, and non-OECD Asia imports a growing amount of LNG,” the Outlook explained.

“The Americas grow as a net exporter of natural gas, driven mostly by LNG shipments from the US to countries outside the region” stated the report.

“During this time, the non-OECD share of global natural gas consumption increases from about 51 percent to 61 percent,” it added.

“In OECD countries, natural gas consumption increases 17 percent between 2018 and 2050, reaching 78 quadrillion Btu,” said the report.

Most of this growth is forecast in the non-OECD industrial sector.

“In non-OECD countries, industrial sector natural gas consumption increases nearly 50 percent, from 32 quadrillion Btu in 2018 to 46 quadrillion Btu in 2050,” said the report.

“Chemical and primary metals manufacturing, as well as oil and natural gas extraction, account for most of the growing demand,” it added.

Natural gas consumption for electricity generation in non-OECD countries increases more than 60 percent, at 1.5 percent per year, accounting for part of the 2.2 percent per year growth in electricity demand in those countries.

Consumption of natural gas in the transportation sector remains the smallest of the end-use sectors throughout the projection period, and yet this sector shows relatively strong growth in non-OECD countries. Increases in demand are driven mostly by LNG use to move freight by truck and rail.

US exports of liquefied natural gas have been growing steadily to make the nation the world’s third-largest LNG exporter, averaging 4.2 billion cubic feet per day in the first five months of the year, exceeding Malaysia’s LNG shipments of 3.6 Bcf/d during the same period.

The US is expected to remain the third-largest LNG exporter in the world, behind Australia and Qatar, in 2019-2020.

“US shipments have risen as four new liquefaction Trains with a combined capacity of 2.4 Bcf/d, Sabine Pass Train 5, Corpus Christi Trains 1 and 2 and Cameron Train 1- started up since November 2018,” said the report from the US Energy Information Administration exploring current trends and prices.

“Although Asian countries have continued to account for a large share of US LNG exports, shipments to Europe have increased significantly since October 2018 and accounted for almost 40 percent of US LNG exports in the first five months of 2019,” added the EIA.

LNG exports to Europe surpassed exports to Asia for the first time in January 2019.

A warm winter in Asia and declining price differentials between European and Asian spot natural gas prices led to increased volumes of US LNG exports delivered to Europe.

Europe’s total LNG imports in the winter of 2018-2019 averaged 10.2 Bcf/d, 60 percent higher than in the previous two winters and the highest winter average since at least 2013.

“Total LNG imports in the three largest global LNG markets - Japan, China, and South Korea - started to decrease in February 2019 amid a milder-than-normal winter and, in Japan, the restart of nuclear power plants,” explained the report.

“Recent declines in price differentials between European pricing benchmarks (including National Balancing Point (NBP) in the UUK and Title Transfer Facility (TTF) in the Netherlands) and Asian spot LNG prices (including Japan LNG spot prices) have affected the flow of flexible (i.e., without a fixed destination specified in an offtake LNG contract) US LNG exports,” noted the EIA.

Because the round-trip transportation costs from the US Gulf Coast to Europe are about $1.50 per million British thermal units (MMBtu) lower than those to Asian markets, a sufficiently narrow price spread between European and Asian spot natural gas/LNG prices will make Europe the preferred destination for exporters of US LNG.

“The spread between Japan spot LNG and NBP/TTF prices was about $1.00/MMBtu in December 2018 and January 2019, and it reached a low of $0.60/MMBtu in April, which supported continued high US LNG exports to Europe,” said the EIA.

The EIA expects US LNG exports will continue to increase in 2019 as the first Trains at the two new liquefaction facilities (Freeport LNG in Texas and Elba Island LNG in Georgia) come online in the next few months.

In its latest Short-Term Energy Outlook, the EIA forecasts US LNG exports will average 4.8 Bcf/d in 2019 and 6.9 Bcf/d in 2020 as new liquefaction Trains at Cameron, Freeport, and Elba Island are commissioned in the next 18 months.

“By 2021, six US liquefaction projects are expected to be fully operational. Another two new US liquefaction projects (Golden Pass in Texas and Calcasieu Pass in Louisiana) that started construction this year are expected to come online by 2025,” stated the report.