Released September 15, 2022 | SUGAR LAND
en
Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Historically-low coal inventories means U.S. natural gas consumption is at a record high, begging the question of just how tight the global market will get should domestic demand stunt exports.
Henry Hub, the U.S. benchmark for the price of natural gas, was trading at around $8.30 per million British thermal units (Btu) early Wednesday. At this time last year, the price was around $3.40. And in its monthly market report for September, the U.S. Energy Information Administration (EIA) raised its forecast for Henry Hub to $9 for the fourth quarter.
Despite this, the EIA said it expected demand from all natural gas end users to increase this year. When natural gas is priced this high, users typically look for alternatives, but those alternatives are at a premium in the domestic market.
Click on the image at right for an EIA graph showing U.S. natural gas consumption through 2023.
"Coal-fired power plants have been limited in their ability to increase power generation in 2022, likely due to historically low on-site inventories of coal, constraints in fuel delivery to coal plants and continued coal capacity retirements," the EIA noted. "Natural gas was crucial in meeting electricity demand peaks during record-high temperatures in summer 2022."
In the electric power sector alone, the EIA expects total natural gas demand to increase by 4% relative to last year to reach 32.1 billion cubic feet per day (Bcf/d). Total domestic consumption, meanwhile, is expected to hit 86.6 Bcf/d, which would set a record should the forecast prove accurate.
In terms of production, the EIA said it anticipated an average of 99 Bcf/d for all of 2022, a marked increase over first quarter levels of 94.6 Bcf/d. Total exports of liquefied natural gas (LNG) sources from domestic basins is set to reach 11.7 Bcf/d by the fourth quarter.
That all suggests that the domestic natural gas market may be facing something of a deficit. Storage levels, meanwhile, are about 10% below average for this time of year.
All this comes as Europe scrambles to avoid an energy emergency during the upcoming winter in the Northern Hemisphere by tapping non-Russian supplies. Russia was once the main natural gas supplier to Europe, but sanctions over the war in Ukraine and the resultant counteroffensive from the Kremlin means supplies are scarce. Firewood was sold out in parts of the European market as consumers brace for the worst.
Without Russia, that leaves it to the likes of the U.S., Qatar and Australia to fill the gap. Among those, the U.S. is the world leader by far in terms of natural gas production, with Qatar and Australia churning out what would be a rounding error for U.S. output.
Click on the image at right for a Statista graph showing natural gas production by country in 2020.
That's bad news for Europe. Analysis from Norwegian consultancy Rystad Energy finds that replacing just half of the Russian volumes of natural gas flowing in the European market would require a "monumental task." Total natural gas deliveries from Russia hit a 40-year low for Europe in midsummer, but was still at around 1.2 Bcf/d.
That's just a fraction of what the U.S. puts on the water each day in terms of LNG. At issue, however, is the lack of regasification terminals in Europe to receive it, though countries such as Germany are working hard to build up the necessary infrastructure.
Meanwhile, from February 2016 to June 2022, it was the economies of Asia that took in most of the LNG delivered from the U.S. France was the only member of the European Union to crack the Top 10, taking in just 5.9% of total LNG exports during that period. That shifted in June, the last full month for which the U.S. Department of Energy supplied data, with France, the Netherlands and Spain capturing the top three spots in terms of export destination.
That said, it does look like the Russia void will be hard to fill as even the U.S. market looks to face something of a supply crunch. That suggests that, as Europe goes, so goes the global market for natural gas.
"Months of geopolitical wrangling have left the European gas market whiplashed, with volatile prices stemming from lack of supply, potential market intervention, and wider uncertainty," Rystad observed. "In the view of most experts and policymakers, the gas market is broken -- but how it should be supported or fixed is an ongoing conversation with no clear resolution in sight."
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 Trillion (USD).
Henry Hub, the U.S. benchmark for the price of natural gas, was trading at around $8.30 per million British thermal units (Btu) early Wednesday. At this time last year, the price was around $3.40. And in its monthly market report for September, the U.S. Energy Information Administration (EIA) raised its forecast for Henry Hub to $9 for the fourth quarter.
Despite this, the EIA said it expected demand from all natural gas end users to increase this year. When natural gas is priced this high, users typically look for alternatives, but those alternatives are at a premium in the domestic market.
"Coal-fired power plants have been limited in their ability to increase power generation in 2022, likely due to historically low on-site inventories of coal, constraints in fuel delivery to coal plants and continued coal capacity retirements," the EIA noted. "Natural gas was crucial in meeting electricity demand peaks during record-high temperatures in summer 2022."
In the electric power sector alone, the EIA expects total natural gas demand to increase by 4% relative to last year to reach 32.1 billion cubic feet per day (Bcf/d). Total domestic consumption, meanwhile, is expected to hit 86.6 Bcf/d, which would set a record should the forecast prove accurate.
In terms of production, the EIA said it anticipated an average of 99 Bcf/d for all of 2022, a marked increase over first quarter levels of 94.6 Bcf/d. Total exports of liquefied natural gas (LNG) sources from domestic basins is set to reach 11.7 Bcf/d by the fourth quarter.
That all suggests that the domestic natural gas market may be facing something of a deficit. Storage levels, meanwhile, are about 10% below average for this time of year.
All this comes as Europe scrambles to avoid an energy emergency during the upcoming winter in the Northern Hemisphere by tapping non-Russian supplies. Russia was once the main natural gas supplier to Europe, but sanctions over the war in Ukraine and the resultant counteroffensive from the Kremlin means supplies are scarce. Firewood was sold out in parts of the European market as consumers brace for the worst.
Without Russia, that leaves it to the likes of the U.S., Qatar and Australia to fill the gap. Among those, the U.S. is the world leader by far in terms of natural gas production, with Qatar and Australia churning out what would be a rounding error for U.S. output.
That's bad news for Europe. Analysis from Norwegian consultancy Rystad Energy finds that replacing just half of the Russian volumes of natural gas flowing in the European market would require a "monumental task." Total natural gas deliveries from Russia hit a 40-year low for Europe in midsummer, but was still at around 1.2 Bcf/d.
That's just a fraction of what the U.S. puts on the water each day in terms of LNG. At issue, however, is the lack of regasification terminals in Europe to receive it, though countries such as Germany are working hard to build up the necessary infrastructure.
Meanwhile, from February 2016 to June 2022, it was the economies of Asia that took in most of the LNG delivered from the U.S. France was the only member of the European Union to crack the Top 10, taking in just 5.9% of total LNG exports during that period. That shifted in June, the last full month for which the U.S. Department of Energy supplied data, with France, the Netherlands and Spain capturing the top three spots in terms of export destination.
That said, it does look like the Russia void will be hard to fill as even the U.S. market looks to face something of a supply crunch. That suggests that, as Europe goes, so goes the global market for natural gas.
"Months of geopolitical wrangling have left the European gas market whiplashed, with volatile prices stemming from lack of supply, potential market intervention, and wider uncertainty," Rystad observed. "In the view of most experts and policymakers, the gas market is broken -- but how it should be supported or fixed is an ongoing conversation with no clear resolution in sight."
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 Trillion (USD).
