LNG

The US Pipeline Hazardous Materials Safety Administration (PHMSA) said it would still take several months for the Freeport liquefied natural gas export plant to fully ramp up and to bring all processing Trains and other facilities on stream.

Freeport LNG, the operating company for the liquefaction and export plant at Quintana Island in Texas, issued a long-awaited update to the June 8 incident and said most of the plant was expected to be closed for three months.

US liquefied natural gas exports surged in the first half of 2021, growing by more than 40 percent compared with the same period of 2020, and government forecasts see demand gathering pace in the second half.

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.