2032323

Curtis Williams

Lead Editor Business

[email protected]

KEY POINTS

* American natural gas prices expected to fall over next six months

* Lower US prices impact revenue in T&T for LNG exports to the region

* Europe continues to have highest LNG prices and US meeting demand

* T&T should also expect lower prices on average for LNG in US market next year

The United States Energy Information Agency (EIA) is forecasting that in the second half of 2022 US natural gas prices will average US$5.97 per million British thermal unit (MMbtu) and expects it to decrease next year.

In its short term energy outlook (STEO) for July, the EIA said it was forecasting lower gas prices as there is likely to be a reduction in LNG exports in the second half, thereby having more gas for domestic use and leading to downward pressure on prices.

“We forecast the Henry Hub spot price will average US$5.97/MMBtu in 2H22 (second half of 2022). This price is down from our forecast of US$8.58/MMBtu in the June STEO in part because, due to the Freeport LNG facility being offline through late 2022, we expect more natural gas to be injected into storage in 2H22 than in last month’s forecast.” The EIA outlook revealed.

The price at the Henry Hub is important to T&T because it impacts the price that Atlantic LNG will get if it sells its LNG into the US market or many other regional markets, including Jamaica.

The EIA noted that natural gas price volatility remained relatively high in 2Q22, averaging 87.2% in June. It added that while in the past, relatively high natural gas prices in the US led to switching of electricity generation away from natural gas to coal, this was not happening.

The report read, “Because of ongoing constraints in the coal market that are limiting the use of coal in the electric power sector, we expect electric power-sector use of natural gas will remain strong, keeping upward pressure on prices, particularly in the case of a significant heat wave. Despite the outage at Freeport LNG, we also expect full utilisation at remaining LNG facilities this summer to raise natural gas prices as Europe’s demand for LNG from the United States remains high.”

According to the US EIA its lower natural gas price forecast for 2H22 contributes to its lower forecast for production in 2023 compared with the June STEO.

“Based partly on the lower production forecast, we raised our price forecast for May through December 2023. We expect the Henry Hub spot price will average US$4.41/MMBtu during 2H23, up 59 cents/MMBtu from last month’s forecast. For all of 2023, we expect the Henry Hub spot price will average US$4.76/MMBtu.”

It is predicting that US natural gas consumption will increase by 2.9 billion cubic feet per day (Bcf/d) (3%) to average 85.9 Bcf/d in 2022 and fall to 85.4 Bcf/d in 2023.

“We forecast US consumption of natural gas to increase in all sectors in 2022, with the largest increase in the electric power sector. We forecast the US electric power sector will consume an average of 31.9 Bcf/d of natural gas in 2022, which is 3.0 % more than in 2021. Our forecast increase occurs despite high natural gas prices in 2022, which in the past have typically encouraged more switching from natural gas to coal as an electricity generation source. The electric power sector continues to use high amounts of natural gas because coal-fired power plants are limited in their ability to act as an alternative source of electricity generation,” it posited.

In terms of natural gas production the USEIA is expecting it will average 96.2 Bcf/d in 2022 in the United States, an increase of 2.7 Bcf/d (3.0%) compared with 2021. Increases are also expected in crude oil and domestic natural gas prices, as well as increases in the number of active oil and natural gas rigs, which will all contribute to an overall increase in drilling activity in 2022 and 2023 that will lead to production growth.

Liquefied natural gas (LNG) exports it said continued to drive growth in US natural gas exports in the first half of 2022 first half of 2022. US LNG exports averaged 11.2 Bcf/d during first half of 2022 and set a monthly record in March 2022, averaging 11.7 Bcf/d. US LNG export capacity is continuing to expand this year with the addition of the Calcasieu Pass LNG export facility, which has been ramping up LNG production ahead of schedule and is expected to be fully operational by the third quarter of 2022 (Q3).

With the ongoing conflict between Russia and Ukraine the EIA noted that Strong natural gas demand and high LNG prices in Europe and Asia drove the continued growth in US LNG exports in the first half of this year.

During the first five months of 2022, the United States exported 71% of its LNG to Europe, compared with an annual average of 34% last year. In the past, Asia had been the main destination for US LNG exports, accounting for almost half of the total exports in 2020 and 2021.

LNG prices in Europe remain high amid supply uncertainties because of Russia’s invasion of Ukraine and the need to replenish Europe’s natural gas inventories, which has kept Europe’s demand for LNG elevated.

It said, “Since December 2021, the EU and the United Kingdom have been importing record volumes of LNG, primarily to fill natural gas storage inventories, which were historically low from fall 2021 through spring 2022. The United States became the largest LNG supplier to the EU and United Kingdom last year, accounting for 26% of total imports.

In the first five months of 2022, LNG imports from the United States to the EU and the United Kingdom continued to grow. European natural gas storage inventories filled up rapidly in recent months, and they were 3% below their five-year average (2017–2021) level at the end of June.. We expect LNG exports will continue to grow in 2023, averaging 12.7 Bcf/d on an annual basis, 17% higher than in 2022. US exports of natural gas by pipeline, almost all of which move natural gas to Mexico, average 8.8 Bcf/d in 2022 in the forecast, up 4% from 2021, and then rise by an additional 4% to reach 9.2 Bcf/d in 2023. Natural gas prices have been volatile in 2022.”