Just as U.S. LNG exports were beginning to recover from months of market-driven cargo cancellations, major Hurricane Laura has cut the rebound short. With Laura taking aim at the Texas-Louisiana border — the location of two large-scale LNG export terminals, including the U.S.’s largest export facility, Cheniere Energy’s Sabine Pass Liquefaction terminal — total feedgas flows to U.S. terminals the past two days dived to fresh lows for 2020 and the lowest since February 2019. Gas production is also way down, with offshore Gulf of Mexico production shut-ins compounding the effects of already depressed drilling and completion activity this year. But production has the potential to rebound more quickly than LNG exports, which could exacerbate the onshore demand effects of the storm; It already will bring cooler weather and drench gas demand for power generation as it moves inland over the Southeast and into the Mid-Atlantic states. Today, we look at how LNG exports are being affected by the storm and what that could mean for the overall gas market balance in the coming days.
Yesterday, in Part 1 of this series, we looked at the potential hurricane impacts to critical energy infrastructure at Mont Belvieu, TX, the center of NGL storage and fractionation. Today, we turn our attention to the potential impacts on the natural gas market, particularly one of its key demand sources: LNG exports.
Hurricane impacts to the Gulf Coast natural gas industry are nothing new. Before the Shale Era, when the bulk of U.S. production was concentrated in the Gulf of Mexico, hurricanes used to be primarily a bullish supply risk for the gas market, with shut-ins taking critical supply volumes out of the market for stretches of time. But as the concentration of production shifted onshore to shale plays, hurricane impacts became more of a bearish risk, with the demand loss as a storm moved inland more than offsetting the production impacts.
What has changed, though, is that nearly 10% of U.S. gas demand now comes from LNG export capacity (at normal utilization), the bulk of that along the Texas and Louisiana Gulf Coast. As the fastest-growing source of demand for domestic natural gas, the emergence of LNG exports along the Gulf Coast in recent years has flipped onshore transportation patterns, changed price relationships and become a critical component for balancing the gas market. And, that demand is now subject to all kinds of factors that previously weren’t on the gas industry’s radar, from shipping accidents to fog and major hurricanes, basically anything that impacts shipping activity and coastal operations, all of which have implications for feedgas deliveries and ultimately domestic gas demand. In other words, hurricanes now pose an additional risk to gas demand even before they come onshore and potentially for days or weeks after the storm has passed (we’ll get to why in a bit.)
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