Natural gas export capacity could explode within months on the Gulf Coast and in Western Canada, a signal for operators to begin ramping up activity. Still, storage is continuing to rise, and weather demand has remained tepid. What does it mean for prices? NGI’s experts have a few answers.
The NGI Thought Leaders team turned the microphone on themselves to answer a few questions about the global gas market, using internal data, research, interviews with industry veterans and quarterly conference call information.
What are the biggest factors driving U.S. natural gas prices? How does the global economy factor into the domestic gas market? What challenges need to be addressed? How will the domestic natural gas market evolve to meet Mexico’s proliferating import demand?
The deep dive by NGI comes as natural gas prices have largely remained stagnant since the spring of 2023. Prices at Henry Hub have fluctuated mostly under $3.00/MMBtu outside of the winter season, according to NGI’s Daily Historical Data. In July, next-day natural gas prices at the U.S. benchmark averaged $2.070 amid record-breaking heat. Prices have trended lower for August.
NGI’s Bidweek Survey for August showed Henry Hub averaging $1.900, down 72.5 cents from July bidweek, and 58.0 cents below the August 2023 bidweek price.
Managing Director Leticia Gonzales, who helms North American Natural Gas Pricing, offered her insight about where gas markets are headed, along with Senior Markets Editors Kevin Dobbs, Chris Newman and Jodi Shafto. LNG Managing Editor Jamison Cocklin and LNG Senior Editor Jacob Dick provided their take on the liquefied natural gas markets, both in North America and overseas.
Senior Editor Christopher Lenton, who oversees coverage of Mexico and Latin America, offered his thoughts about Mexico’s newly elected president – and what that could mean for natural gas markets. Senior Energy Analysts Josiah Clinedinst and Josten Mavez also weighed in, as did Managing Editor Carolyn Davis, who oversees News coverage.
LNG And Weather
LNG is key to where gas prices may be headed – along with inventories, the NGI experts agreed.
LNG has “rightfully garnered a lot of headlines, given the explosive growth witnessed in the North American natural gas market in the last eight years,” Gonzales said.
But thought leaders noted another, more unpredictable factor, causing volatility in the gas markets. It has been one of the biggest factors since long before U.S. exports began: the weather.
“Weather demand cannot be discounted, as it stands to have ripple effects on both the supply and demand side of the equation,” Gonzales said. “From production curtailments because of freeze-offs to hurricanes that can impact LNG exports – not to mention the impact temperatures can have on power generation demand – weather remains king in the natural gas market.”
Mavez agreed. “Weather continues to be a key driver of U.S. gas prices.”
Dobbs noted that weather events often are tied into the surfeit of gas storage.
“Excess supply in storage following a mild winter has been a big drag on prices,” Dobbs said.
Gas inventory “was 16% above the five-year average at the close of July, and it continues to weigh on prices. With production strong at around 102 Bcf/d through July, supply kept pace with peak summer demand, allowing the storage surplus to linger and suppressing bullish sentiment.”
Newman said he is “watching estimates for where Lower 48 gas in working storage will land at the end of the injection season. The forecasts have ticked closer to 3,900 Bcf,” nearing U.S. storage capacity of around 4,200 Bcf. That’s not allowing a lot of room for error.
“If we were to get another hurricane shutting down Gulf Coast LNG exports, it could lift the trajectory higher toward 4,000 Bcf, where the market starts to get nervous about storage facilities filling up.”
Gas inventories “have been contracting through the summer, as weekly injections have been consistently light compared with historical averages,” Shafto said. “However, some market experts believe the decline rate has been too slow.”
If You Build It…
Another complication – and big opportunity – is to provide adequate infrastructure to move molecules toward thirsty demand markets. While many operators are working to move their gas to the Gulf Coast, that’s not the only dilemma, noted Clinedinst.
“New pipeline routes are becoming increasingly more contentious,” he said, “with increased environmental and safety concerns. As a result, greenfield pipeline projects, such as the Mountain Valley Pipeline, take far longer and require more capital than brownfield projects, such as expanding pipeline capacity along an already existing pipeline route.”
Infrastructure “is one of the biggest risks facing the U.S. natural gas market,” Gonzales noted. “The fact is, natural gas demand is growing. LNG exports have made that a reality, not only domestically, but also in Mexico, where U.S. gas is piped to feed Mexican export facilities and for power generation.
“While technological advances have kept U.S. gas plentiful and inexpensive, existing infrastructure is inadequate. This is true both from a capacity standpoint and a safety perspective, since many of the most highly utilized pipelines are also among the oldest,” she said.
Dobbs agreed that “limited pipeline capacity is a major issue. Project approvals often take years and, as a result, infrastructure has not kept pace with the growth in production and demand.”
Is there a way that the interconnected parties can solve some of the issues?
“LNG terminals, natural gas producers, utilities, power generators and, increasingly, industrial end-users, have been exploring ways to bring more infrastructure online as competition for supplies intensifies amid the export boom,” Cocklin said.
“Many companies are exploring selling into markets that they have historically been unfamiliar with, while gas buyers like industrials are thinking more seriously about securing firm supplies in a way they haven’t had to before.”
There is a “tug of war amid the different gas consumers,” Cocklin said. That is “likely to lead to more growth in the midstream sector, either for pipelines or storage facilities.”
Still, as the U.S. gas market “has become increasingly tethered to the global economy by way of LNG exports…major events overseas can have major implications on demand,” Gonzales said.
“This played out when Covid-19 brought the world to a standstill, leading to the eventual cancellations of dozens of LNG cargoes. Russia’s invasion of Ukraine had the opposite effect, with buyers throughout Europe clamoring for security of supply by way of U.S. LNG.”
Can U.S. policymakers quell some of the issues involved with gas exports? Today, regulators face a dilemma, Dick explained.
“The Department of Energy has been studying LNG permitting policies, much to the dismay of export proponents,” Dick noted. “The Federal Energy Regulatory Commission has taken heat from federal courts for failing to factor in environmental impacts of U.S. gas heading overseas.”
NextDecade Corp.’s Rio Grande LNG facility last week had its FERC authorizations vacated by a federal appeals court, effectively leaving them without a key approval to move ahead with construction and operation.
“Will we see more stringent regulatory hurdles for export terminals? What about explicit price protection measures?
“I think that largely hinges on what happens in November and, perhaps ironically, what next international crisis might be on the horizon to shake up markets,” he said.
Lack Of Direction?
“What struck me through many of the energy industry’s second quarter conference calls was the lack of certainty about the direction of the North American energy market,” Davis said. “Last year, nearly all of the oilfield services executives, as well as the management teams for their exploration and production (E&P) customers, had signaled natural gas activity would be picking up this year in advance of LNG export capacity coming online in Canada and along the Gulf Coast.
“That’s clearly not happening,” she said. “Executives now are indicating activity may not increase before 2025. The concern in part can be traced to LNG infrastructure issues, headlined most recently by the six-month-plus delay to starting up exports from the Golden Pass LNG Terminal LLC on the upper Texas Coast.”
There also are questions about how much impact the new capacity may or may not have on prices.
“I’m unsure about how much impact new capacity may have on prices after listening to Ovintiv Energy Inc.’s second quarter call,” Davis said. “Shell plc-led LNG Canada is set to ramp up in the next few months.” The export project, CFO Corey Code said, will be a “real positive for Canada and Montney gas producers. But it’s probably not a structural game changer” for AECO pricing relative to the New York Mercantile Exchange.”
Indeed, NGI’s NOVA/AECO C prices have hovered well below C$2.00/GJ for most of the year, outside of a brief spike in January. The lowest price hit only 57.5 cents in mid-June.
“That’s the first time I’ve heard an executive downplay an export project’s impact on gas prices,” Davis said. “Now I’ve got questions.”
Another challenge for gas prices revolves around “growing renewables power generation, which has been feasting mostly on coal’s share of the power stack in recent years,” Newman noted. “Coal retirements are slowing, so gas is more in the bullseye. Gas power burns may flatten out this summer. However, gas again this summer has so far defied the predictions for a peak in demand.”
LNG, LNG, LNG
In the last five years, U.S. exports have been “increasingly tied to the global energy economy,” Mavez noted. LNG exports have risen from 0.4 Bcf/d in 2016 to 12.5 Bcf/d so far in 2024.
Likewise, Cocklin said domestic exports “have been, and will continue to be, the next frontier for the U.S. natural gas industry.”
The expansion in domestic exports has not led to “sustained natural gas price increases in the United States, given the country’s ample supply and storage infrastructure,” he noted.
Mavez cautiously agreed. Lower 48 production has continued to outpace demand, but “we may be starting to see that growth slowing because of fuller storage in both the U.S. and Europe following a mild 2023-2024 winter.”
“I think global price volatility and the lionizing of the U.S. LNG industry over the last few years as a stabilizing force in the international market have helped usher in a prospective shift around Lower 48 gas prices,” Dick added.
“Anecdotally, I’ve seen a shift in messaging from companies and industry groups,” he said. Companies now deny that “international markets have the potential to raise domestic prices” and instead argue that “growing reliance on U.S. LNG will mean more incentives for shale producers to throw the throttle wide open, i.e., gas for Tokyo and Pittsburgh, too.”
What About Mexico?
A lot of U.S. gas is making its way to southern markets in Mexico and beyond.
“Mexico is importing record amounts of U.S. natural gas this year, with cross-border flows up 10% year-to-date compared with 2023,” Lenton said. “This summer, figures have hovered around 7 Bcf/d, but the summer started early, at least in terms of seasonal demand south of the border.
“We saw 7 Bcf/d of natural gas imports as early as May. Compare this to May 2018, when Mexico imported 4 Bcf/d of natural gas, and the growth trend is evident.”
Mexico also has a “flurry of natural gas-fired power projects in the works, along with rising industrial demand,” Lenton noted.
Manufacturers “continue to set up shop in Mexico, along with LNG export facilities that would use U.S. feed gas. I expect Mexico to continue being an integral part of the North American natural gas market, with some experts forecasting the yearly figure to hit 9 Bcf/d-plus by 2030.”
Incoming Mexico President Claudia Sheinbaum assumes office in October.
“At the least, the direction in terms of natural gas won’t change too drastically from today,” Lenton said. “Mexico’s growing economy depends on U.S. natural gas. About 60% of its power sector runs on natural gas, most of it sourced from Texas.”
…And Canada?
“Canadian producers ramped up over the past two years, driving output to record levels in anticipation of LNG Canada,” Dobbs said. “In the meantime, however, supply in Canada outstripped demand this year, motivating producers to send more gas into the Lower 48. Canadian imports recently topped 7 Bcf/d – more than 1 Bcf/d than in much of July 2023 – adding to the U.S. supply abundance and helping to keep prices in check.”
Canada continues to send gas supply to the Lower 48. Domestic imports from Canada “are almost balanced out with the amount of natural gas the U.S. is exporting to Mexico,” Clinedinst said. “Both imports from Canada and exports to Mexico have been increasing over the past few years, but Mexico exports are now outpacing Canada imports.
“The average Canada net imports in the past 60 days are 6.4 Bcf/d, while average Mexico exports in the past 60 days are at 7.1 Bcf/d, a difference of 0.74 Bcf/d,” he noted.
“While these two markets are not directly linked, the current relationship between the three markets is a way for North American natural gas supply to balance Canada, U.S. and Mexico current energy needs.”
Where natural gas prices head in 2025 and beyond is far from certain, according to Gonzales. Structural support from LNG exports certainly could keep prices at a level attractive for producers and consumers alike. On the other hand, growing renewables and the potential for too much supply to flood the market could keep a tight lid on prices.
“Certainly, U.S. gas prices have seen their share of volatility in recent years,” Gonzales. “But the market tends to ultimately find its way to a level that is adequate for E&Ps to produce enough supply for growing consumption while keeping prices low. The forward curves currently reflect that. We’ll be monitoring for any changes, though.”
