LNG

The US Government forecasts increases in liquefied natural gas exports as well as higher benchmark Henry Hub natural gas prices and a rise in the Brent crude oil price in early 2025, while outlining working gas storage expectations at end of injection season.

The United States has been exporting more liquefied natural gas than any other country and LNG shipments were expected to surge through the next 12 months while deliveries were also increasing of pipeline natural gas to both Mexico and Canada.

The US government forecasts liquefied natural gas exports will increase by 14 percent in 2023 and as a result of less-than-expected natural gas consumption the nation will close the withdrawal season at the end of March with very high inventories.

The US Government forecasts that liquefied natural gas exports will be almost 85 percent higher in 2023 than they were in 2020 and that the nation’s natural gas production will increase in the next two years.

The US government reported that the increase in the nation’s liquefied natural gas exports was supported by large prices differences between the benchmark Henry Hub and spot prices in Europe and Asia and forecast a surge in shipments through March 2022.

The US government forecasts a slight decline in US liquefied natural gas exports in May 2021 before they rise again in the Northern Hemisphere summer months to meet continued demand in Europe and Asia.

Natural gas use for LNG is expected to be around 8.6 billion cubic feet per day, more than 90 percent of baseload export capacity utilization in May, before increasing to above 9.0 Bcf per day, according to the short-term outlook of the US Energy Information Administration.

“We expect LNG exports will average 9.2 Bcf per day in both 2021 and 2022, up from 6.5 Bcf per day in 2020,” said the report.

On US production, the EIA forecasts output of dry natural gas would average 91.1 Bcf per day in 2021, which is a decline of 0.3 percent from 2020.

The report estimated that production increased to 91.3 Bcf per day in March, though it forecast relatively flat dry natural gas production in May ahead of production beginning to rise in mid-2021.

“We forecast dry natural gas production will reach 92.0 Bcf per day in the fourth quarter of 2021 and average 93.1 Bcf per day in 2022,” the report added.

“The increase in production reflects sustained higher forecast prices for natural gas and crude oil compared with 2020,” said the EIA.

Working gas storage

On the storage front, the EIA estimated that natural gas inventories at the end of April 2021 were almost 2.0 trillion cubic feet (Tcf), which was 3 percent lower than the five-year (2016-2020) average.

“Natural gas withdrawals from storage during the winter of 2020-2021 were higher than the five-year average, largely as a result of the cold February temperatures that contributed to a drop in natural gas production,” the report explained.

“We forecast that natural gas inventories will end the 2021 injection season (end of October 2021) at more than 3.6 Tcf, which is 3 percent below the five-year average,” said the EIA.

On the Henry Hub spot price, the report expected that it would average $2.78 per million British thermal units in the second quarter of 2021 and would average $3.05 per MMBtu for all of 2021, which is up from the 2020 average of $2.03 per MMBtu.

“We expect natural gas prices will rise this year, primarily as a result of two factors, the growth in LNG exports and rising domestic natural gas consumption in the residential, commercial and industrial sectors,” it said.

The EIA forecasts that in the 2022, the Henry Hub price would decline slightly to an average $3.02 per MMBtu “amid slowing growth in LNG exports and rising production” of natural gas.

The US expects that the consumption of domestic natural gas will average 82.9 billion cubic feet per day in 2021, lower than in the previous year as prices rise, while US monthly LNG exports are reaching levels to be just short of shipment totals from the largest global suppliers Australia and Qatar.

The US Government expects LNG exports will average 8.5 billion cubic feet per day for all of 2021compared with 9.8 Bcf per day during January when around 18 to 22 cargoes were lifted each week from the six plants in operation amid high spot prices in North Asia.

The US Government forecasts that the nation’s liquefied natural gas exports will decline by around 17 percent as 2020 progresses, while overall natural gas output will also drop and nationwide storage will be at record levels by November.

LNG exports are expected to decline from an average 5.8 billion cubic feet per day in the second quarter to 4.8 Bcf per day in the third quarter as a result of lower expected global demand for cargoes, according to the short-term outlook of the US Energy Information Administration.

In cargo terms this would amount to a second-quarter total of about 12 cargoes per week declining to around nine shipments per week in the third quarter, on an average cargo containing 3.6 Bcf of weekly gas production.

In the latest weekly LNG export figures for April 30 to May 6, the EIA had reported 15 cargoes departing from five of the six LNG plants (Sabine Pass, Corpus Christi, Freeport, Cameron and Cove Point) with a combined LNG-carrying capacity of 54 Bcf, or 3.6 Bcf per vessel.

The EIA also expects natural gas production to decline, led by the associated-gas output from the Permian Basin of West Texas and southeast New Mexico and the Marcellus and Utica Shales of the northeast US.

“US dry natural gas production set a record in 2019, averaging 92.2 Bcf per day,” said the EIA.

“The EIA forecasts dry natural gas production will average 89.8 Bcf/d in 2020, with monthly production falling from an estimated 93.1 Bcf/d in April to 85.4 Bcf/d in December,” said the agency.

Natural gas production declines the most in the Appalachian region and the Permian Basin.

“In the Appalachian region, low natural gas prices are discouraging producers from engaging in natural gas-directed drilling, and in the Permian region, low oil prices reduce associated gas output from oil-directed wells,” explained the EIA.

“In 2021, forecast dry natural gas production averages 84.9 Bcf/d, rising in the second half of 2021 in response to higher prices,” it added.

The EIA additionally forecasts that total US working natural gas in storage ended April 2020 at 2.3 trillion cubic feet (Tcf), 20 percent more than the five-year (2015-2019) average.

In the forecast, inventories rise by 2.1 Tcf during the April through October injection season to reach almost 4.2 Tcf on October 31, which would be a record level.

In April, the Henry Hub natural gas spot price averaged $1.73 per million British thermal units and the EIA forecasts that prices will generally rise through the rest of 2020 as production declines.

“Henry Hub natural gas spot prices will average $2.14/MMBtu in 2020 and then increase in 2021, reaching an annual average of $2.89/MMBtu,” said the report.

The EIA expects total consumption of natural gas to average 81.7 billion cubic feet per day (Bcf/d) in 2020, down 3.9 percent from the 2019 average, primarily because of lower industrial sector consumption of natural gas.

“EIA forecasts industrial natural gas consumption to average 21.3 Bcf/d in 2020, down 7.1 percent from 2019 as a result of lower expected manufacturing activity,” said the report.

“This expected decline is lower than the 0.3 percent decline forecast in the April Outlook because of large downward revisions to the macroeconomic forecast in the May Outlook,” it added.

In its crude oil report, the EIA forecasts Brent North Sea oil prices will average $34 per barrel in 2020, down from an average of $64 per barrel in 2019.

EIA expects prices will average $23per barrel during the second quarter of 2020 before increasing to $32 per barrel during the second half of the year.

It then expects that Brent prices will rise to an average of $48 per barrel in 2021, $2 per barrel higher than forecast last month, as the EIA expects that declining global oil inventories next year will put upward pressure on oil prices.

EIA estimates global petroleum and liquid fuels consumption averaged 94.1 million barrels per day in the first quarter of 2020, a decline of 5.8 million b/d from the same period in 2019.

“It expects global petroleum and liquid fuels demand will average 92.6 million b/d in 2020, a decrease of 8.1 million b/d from last year, before increasing by 7.0 million b/d in 2021,’ said the report.

“Lower global oil demand growth for 2020 in the May STEO reflects growing evidence of significant disruptions to global economic activity along with reduced expected travel globally as a result of restrictions related to Covid-19,” it added.

The EIA has revised its current forecast of domestic crude oil production down from the April Outlook as a result of lower crude oil prices.

It forecasts US crude oil production will average 11.7 million b/d in 2020, down 0.5 million b/d from 2019.

“In 2021, the EIA expects US crude oil production to decline further by 0.8 million b/d. If realized, the 2020 production decline would mark the first annual decline since 2016,” stated the report.

“US crude oil production has not declined for two years in a row since the 17-year period of declines beginning in 1992 and running through 2008,” it noted.

“Typically, price changes affect production after about a six-month lag. However, current market conditions will likely reduce this lag as many producers have already announced plans to reduce capital spending and drilling levels,” it explained.

US natural gas production rose to an average of 86.9 billion cubic feet per day in October and despite low storage levels, the government expects strong growth in US gas output to put downward pressure on prices in 2019.