baseload

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.

U.S. natural gas prices are increasingly susceptible to periodic spikes and volatility as baseload demand for gas — or the minimum level of demand that must be met on a daily basis — specifically from power generators and liquefaction plants, has rapidly climbed in recent years, and is still rising. The power sector has upped the ante on its gas consumption, with gas replacing coal as the most cost-effective go-to fuel for meeting baseload electricity demand. On top of that, feedgas deliveries to LNG export terminals have added 7 Bcf/d of demand to the gas market in the past three years, much of which is flowing at high, baseload-like rates, and that demand is set to increase further as more liquefaction projects are completed. These two market components together — LNG exports and gas-fired power generation — will take a bigger slice of domestic gas supplies, making the gas market ever more sensitive to weather, maintenance and other factors that disrupt that baseload level of demand or the supplies that serve it. We’ve already begun to see the effects of this phenomenon on Henry Hub and other regional gas prices. Today, we delve into this fundamental shift and what it could mean for the gas market.

Today the Energy Information Administration (EIA) publishes weekly US natural gas storage numbers for the week ending July 6, 2012. Last week EIA reported 39 Bcf injections making the total storage 3,102 Bcf. The natural gas stockpile is now 602 Bcf higher than this time last year but the rate of storage injection has slowed as a result of increased demand for natural gas burn by power generators. In today’s blog we look at the supply demand picture to see what is driving higher natural gas burn by power generators and the implications for storage.