U.S. LNG export capacity has increased 40% in the last seven months, from 4.3 Bcf/d in April to about 6 Bcf/d now, and feedgas demand at the terminals already exceeds that, with more than 7 Bcf/d flowing to the facilities in recent weeks. With each new liquefaction train coming online, feedgas deliveries to export terminals have steadily climbed, and, for the most part, have sustained at rates that suggest consistently high utilization of the facilities’ capacity, particularly once they begin commercial operations and regardless of international market dynamics. And, that demand is expected to increase further as more liquefaction capacity comes online in 2020 and beyond. The emergence of this seemingly inelastic demand with a baseload-like pull on domestic gas supplies marks an underlying shift in the U.S. gas market that, along with the rising baseload demand from power generation, will make national benchmark Henry Hub prices more prone to spikes. Today, we explain how ever-increasing LNG exports will reshape the U.S. demand profile and, in turn, Henry price trends.
In Part 1 of this two-part series, we discussed the new reality that will increasingly influence U.S. natural gas prices, which is that the baseload, or minimum level, of demand for gas has grown significantly in recent years and become a larger portion of the overall gas market. That reality is making gas prices more vulnerable to periodic, short-term price spikes during times of extreme weather events or other market disruptions. That’s because, as gas is needed to serve more and more of that baseload-type demand, which is less flexible by nature, it leaves less wiggle room in the market for gas supply to respond to the incremental demand that comes with extreme weather or other short-term fundamental anomalies. We’ve seen evidence of this in historical Henry Hub futures prices in recent years, as well as at regional spot markets, such as the $200/MMBtu cash prices seen at Sumas, WA, in February 2019, and, the $100-plus prices in the Northeast in January 2018.
As we addressed in the previous episode, one big source of increasing baseload gas demand is the power-generation sector, where the market share of gas has catapulted from only 12% in 1990 to nearly 40% today, with gas replacing coal as the most cost-effective, go-to fuel for meeting baseload electricity demand. Next, we shift our focus to the other fast-growing demand component — exports — and how it fits into this demand picture.
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