LNG

US dry natural gas production has remained at relatively high levels throughout 2023 despite a decline in US natural gas prices with growth driven by the Permian Basin where most of the natural gas is produced from associated gas produced from oil wells.

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 said liquefied natural gas exports will be lower over the next few months of 2023 because of high gas stocks in Europe and Freeport LNG being offline while record dry gas production growth has been outpacing demand.

The latest US government energy report said the Henry Hub benchmark natural gas price from which the LNG price is derived is expected to increase to an average of $3.22 per million British thermal units in 2021 compared with last year’s average of $2.02 per MMBtu.

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.

Cargo liftings of liquefied natural gas are maintaining their momentum through the week to April 11 and spot cargo prices for North Asia increased for June and July compared with last week while European gas values were flat.

Global liquefied natural gas export plants continued to send out a steady level of shipments, keeping US Gulf Coast LNG futures at seasonal highs, even as North Asian spot prices for China and Japan declined slightly along with European gas values amid an oil price plunge of more than 9 percent.

LNG cargo liftings were higher worldwide for a second straight week even as North Asia spot LNG prices dropped for January and February deliveries, while staying around the $6.200 per million British thermal units level as European and US natural gas benchmarks retreated amid Covid-19 shutdowns.

Higher global prices indicate improving netbacks for buyers of US LNG in European and Asian winter season markets with shipments rising as the industry fulfils its role as an outlet for domestic natural gas amid falling consumption and production.

The increased prices come amid expectations of natural gas demand recovery and potential LNG supply reductions because of maintenance at overseas plants, according to the short-term energy outlook of the US Energy Information Administration.

The EIA forecasts that US LNG exports will average more than 9.0 billion cubic feet per day from December 2020 through February 2021.

The report said that the cargo shipments, mostly from the Gulf Coast, averaged 4.9 Bcf per day in September, an increase of 1.2 Bcf per day from August.

Consumption of domestic natural gas is expected to decline slightly and will average 83.7 Bcf per day in 2020, down 1.8 percent from 2019.

“The decline in total US consumption reflects less heating demand in early 2020, contributing to residential and commercial demand in 2020 averaging 13.1 Bcf per day (down 0.7 Bcf per day from 2019) and 8.7 Bcf per day (down 0.9 Bcf per day from 2019), respectively,” said the report.

It forecasts industrial consumption will average 22.3 Bcf per day in 2020, down 0.8 Bcf per day from 2019 as a result of reduced manufacturing activity.

“EIA expects total US natural gas consumption will average 78.7 Bcf per day in 2021, a 5.9 percent decline from 2020,” said the report.

“The expected decline in 2021 is the result of rising natural gas prices that will reduce demand for natural gas in the electric power sectors,” it added.

Dry natural gas production will average 90.6 Bcf percent in 2020, down from an average of 93.1 Bcf per day in 2019.

In the forecast, monthly average production falls from a record 97.0 Bcf per day in December 2019 to 85.9 Bcf per day in May 2021, before increasing slightly.

“Natural gas production declines the most in the Permian region, where EIA expects low crude oil prices will reduce associated natural gas output from oil-directed rigs,” said the report.

Dry natural gas production in the US is expected to average 86.8 Bcf per day in 2021.

On the storage front, the EIA estimated that total working natural gas in storage at the end of September was at more than 3.8 trillion cubic feet, 12 percent more than the five-year (2015-2019) average.

In the forecast, EIA expects inventories to be more than 4.0 Tcf on October 31, which would be a record high.

“However, because expected natural gas production will be lower this winter than last winter, EIA forecasts inventory draws will outpace the five-year average during the heating season and end March 2021 at 1.7 Tcf, which would be 6 percent lower than the 2016-2020 average,” it added.

As regards energy-related carbon dioxide (CO2) emissions, after falling by 2.6 percent in 2019 from the previous year’s level, the emissions will decrease by 10 percent (536 million metric tons) in 2020 as a result of reduced consumption of all fossil fuels. 

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.