The latest weather forecasts for the second half of December have taken the edge off the U.S. natural gas market and reduced the chance of a true doomsday storage scenario. But U.S. gas storage inventories nonetheless remain at historically low levels, and long-term weather forecasts are notoriously fickle. So this winter could still see a resurgence in volatility before the market finds a balance. And while Henry Hub prices went on a wild ride earlier this month before settling back in below $4/MMBtu, for most of December thus far, Eastern gas prices have traded at levels that make LNG exports from there uneconomic. In today’s blog, we continue our review of the winter U.S. gas market with a closer look at how Cove Point Liquefaction (CPL) might respond to high prices.
Posts from Amber McCullagh
Reliably low Henry Hub natural gas prices are a primary, long-term driver of U.S. LNG exports. But prices were up as much as 40% during November and, with gas inventories unusually low, Henry prices could spike considerably higher if winter weather continues to come in colder than normal. Which raises the question, how high would gas prices need to go before U.S. liquefaction becomes the lever that balances the U.S. gas market? The short answer is, it depends on where the LNG is headed — and lately, a lot more is bound for Europe. Today, we continue our review of the current gas market with an analysis of LNG variable costs and UK National Balancing Point prices, and how they will help determine LNG export volumes if U.S. gas prices spike.
The U.S. natural gas market enters winter this year in a delicate balance: production is at an all-time high and growing fast, but gas storage inventories are well below year-ago levels and the five-year average — and at an all-time low relative to consumption. If winter weather is normal or mild, the U.S. gas market will likely begin to settle into a period of sub-$3/MMBtu prices. But this year’s low inventory level means that colder-than-typical weather this winter could spell more gas price upside than the market has seen in many years. Today, we continue our review of the current gas market with a look at the relationship between gas- and coal-fired generation, and at how the combination of low gas storage inventories and low coal stockpiles might play out this winter.
U.S. natural gas supply continues to set all-time records, and strong production growth is expected to continue. Most of these supply gains will come from the Northeast, where another round of pipeline capacity additions are being completed. But despite all this incremental gas output, a combination of cold weather last winter and hot weather this summer means that U.S. gas storage inventories are likely to end the fall season at their lowest levels since 2005. And even this comparison understates how low inventories are — gas consumption has grown dramatically in the past 10 years, and storage inventories are at all-time lows when considered in terms of the number of days of average consumption. Today, we begin a series on the implications of historically low gas storage inventories, including what the gas market might look like if this winter turns out to be colder than normal.
U.S. LNG exports have climbed from zero three years ago to more than 3 Bcf/d now, and export capacity is set to grow to more than 10 Bcf/d by 2023. With the U.S. emerging as a dominant player in the global LNG landscape, international players are now increasingly susceptible to the day-to-day fluctuations of the U.S. natural gas market — a highly liquid, fungible and interconnected arena that’s propelled by constantly shifting transportation economics. The global LNG market inevitably is also moving toward spot-oriented trading based on short-term economic conditions. Thus, prospective buyers of U.S. LNG considering pre-FID projects increasingly need to understand the ever-changing U.S. gas flow and pricing dynamics. At the same time, U.S. market participants trying to understand how 10 Bcf/d of LNG exports will affect the domestic market also will need to closely track LNG activity, including feedgas flows and prices. In today’s blog — which launches our new LNG Voyager service — we look at how U.S. onshore gas market dynamics are affecting gas supply costs at the Sabine Pass LNG facility, and considers what this might mean for several of the pre-FID projects.