U.S. exports of liquefied natural gas (LNG) are set to surge this year from the already record levels in 2020 as demand in Asia and Europe is high, even in the off-peak season. All-time high LNG exports from America, coupled with rising domestic natural gas consumption outside of the power sector, are set to keep the U.S. benchmark, the Henry Hub spot price, averaging above $3 per million British thermal units (MMBtu) this year. This would be more than $1/MMBtu above last year’s average price of just $2.03/MMBtu, the Energy Information Administration said in its June Short-Term Energy Outlook (STEO) this week.
Global Gas Demand Is High
Recovering natural gas consumption around the world and higher than usual demand for replenishing low gas inventories in Asia and Europe have kept LNG prices in these key importing LNG regions high after the end of the winter heating season and ahead of the peak summer demand season.
Economic recovery and a rebound in LNG demand in the world’s largest LNG importing region, Asia, are set to keep spot regional prices around current levels of $10/MMBtu for most of the summer, which could be the highest price for this time of the year in seven years.
Demand in China is currently robust, as is demand in Europe, which sent Asian spot LNG prices for July delivery into Northeast Asia rising to $10.95/ MMBtu last week, industry sources told Reuters. Last week’s spot price in Asia had increased by $0.65 week over week and marked the second consecutive week of rising spot prices.
In Europe, countries had already started to restock with natural gas following a harsh winter that drained inventories when a cold snap in April caused unusual additional withdrawals from storage.
“A cold snap in April caused a counter-seasonal net withdrawal of inventory, worsening the storage situation which for several months has been running below seasonal averages,” Wood Mackenzie said in its Q2 LNG short-term trade and price outlook last month.
U.S. LNG Exports Are Soaring
Spot prices at around $10/MMBtu in Asia, plus a tighter market in Europe with below-average gas inventory levels, is great news for U.S. LNG exporters this year.
LNG exports set an all-time record in March 2021 at 10.5 Bcf/d and averaged 9.2 Bcf/d in April—the most exported LNG for those months since the United States began exporting it in 2016, according to EIA data.
High levels of U.S. LNG exports continued in May and supported Henry Hub natural gas futures prices above $3.00/MMBtu, the EIA said in its STEO for June.
According to EIA estimates, American LNG exports averaged 10.0 Bcf/d in May, the most on record for that month.
In fact, every month since November 2020 has been among the 10 highest months for U.S. LNG exports on record, the EIA noted.
So for the full-year 2021, the United States is expected to smash the 2020 record of 6.53 Bcf/d in LNG exports and ship abroad as much as 9.38 Bcf/d, the latest EIA estimates showed.
Next year, LNG exports are set to slightly ease to average 9.22 Bcf/d, according to the June STEO.
If EIA’s forecast for 2022 pans out, this would be the first drop in LNG annual exports in nearly a decade—the first since 2013, according to Reuters estimates.
U.S. Natural Gas Prices Are Rising
Reduced domestic natural gas production and record-high American LNG exports have fueled a rally in natural gas prices since the start of this year. The winter storms in February, which triggered the largest monthly drop in U.S. natural gas production on record, primarily due to freeze-offs in Texas, also played a part in rising natural gas prices as inventories drew down quickly amid record residential consumption demand.
EIA expects the Henry Hub spot price will average $2.92/MMBtu in the third quarter of 2021 and $3.07/MMBtu for all of 2021, which will be up from the 2020 average of $2.03/MMBtu.
Next year, the Henry Hub price is set to average $2.93/MMBtu as growth in LNG exports is set to slow while domestic natural gas production is expected to rise.
U.S. Natural Gas Production Set To Increase From 2020 Lows
Natural gas production is set to increase this year, after the slump in 2020 due to lower demand in the pandemic and the curtailment of associated gas production as shale producers reduced oil output.
U.S. dry natural gas production is expected to average 92.18 Bcf/d this year and then rise to 93.9 Bcf/d in 2022, as per EIA estimates. Both 2021 and 2022 production would be higher than last year’s average of 91.35 Bcf/d.
Consumption, on the other hand, is expected to drop by 0.5 percent to 82.9 Bcf/d this year, the EIA said in its June STEO, partly because more electric power generators would switch to coal due to the higher natural gas prices.