IIR, East Daley, Show How Natural Gas Storage Will Affect Prices Next 18 Months

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Editor's note: This is the third installment of a U.S. natural gas series featuring the insights of Industrial Info and East Daley.

Written by Paul Wiseman for Industrial Info Resources (Sugar Land, Texas)--The U.S. enters the winter gas storage drawdown season with more supply tucked away than last year and with amounts over the five-year average, said Industrial Info's Maria Sanchez in a recent webinar. But, as East Daley's Jack Weixel noted in the same webinar, storage space must expand quickly to meet expected rises in liquefied natural gas (LNG) exports and other demand growth over the next five years.

Sanchez pointed out that a combination of Industrial Info pipeline transport data and U.S. Energy Information Administration (EIA) information gives the company the tools to provide a weekly storage estimate. Nationally and regionally, storage is above normal.

Rocky Mountain High
The area with the greatest surplus is the Rocky Mountain region, which is 18% higher than 2023 and almost 35% over the 5-year average, Sanchez said. But it is only about 8% of the U.S. total, which is too small to push prices down significantly. A combination of some warmer-than-normal winters and greater injection rates since 2020 are largely responsible for this situation.

The rest of the nation is just slightly above normal, ranging from less than 1% (East) and 3% (South Central) to 6% (Pacific) over last year, and all regions being just either side of 5% compared to the five-year numbers.

Storage Is High, So We're Good, Right?
Not so fast, said Weixel. One reason is that total available storage capacity has declined by about 60 billion cubic feet (Bcf) from 5-years-ago levels. "Actually, there's a great need for flexible salt dome storage," he said.

The market must see more need because there are proposals in the works for about 130 Bcf of brownfield extensions or greenfield projects, many of which are in the South-Central region involving Texas and Louisiana. Of those proposals, 106 Bcf are for salt dome storage. "We think this is a good start," Weixel said.

Long on LNG
Near-term growth in LNG export facilities is one thing driving demand, with higher natural gas demand from utilities and data centers being the other. Most LNG facilities, current and proposed, are located in the South-Central region, and Weixel explained that this is the area with the greatest need for storage flexibility--especially since it is also the region most prone to disruptions from tropical storms and hurricanes. When hurricanes hit, "you have less ability to inject during those periods," he said, at least in part due to the shutting in of a certain number of the offshore platforms that feed the pipelines.

"Should Louisiana be home to more than 20 Bcf of LNG offload security (much of which is currently in the works), it would only take seven days of demand destruction from (an) LNG facility to basically handicap South-Central inventory." And that's just LNG demand; it doesn't include power or industry, he pointed out. With the amount of LNG export facilities operating today, there are 13 days of capacity.

In nearby Port Arthur, Texas, there are about 11 days of capacity against the possibility of hurricane-caused demand destruction.

Supply/demand issues also affect storage itself. With storage at five-year highs, prices for that convenience are also skyrocketing.

Fortunately for those storing and those exporting, help is on the way, Weixel said, with greenfield storage developments that "would add a ton of flexibility to the market."

This Winter and the Next 18 Months
Injection rates this summer were a bit below average, he said, raising prices by about $1 per million British thermal units (MMBtu). "So as the surplus shrinks, the higher price you will realize. By the end of winter 24-25 we expect that the surplus could shrink down to about 41 Bcf, and even perhaps slip into deficit mode for a few short months," he said, again cautioning that unusual weather could change everything.

"We think Henry Hub could average about $3.24 for the calendar year of 2025," he said, compared to the $2.80 range it was at in the second week of October 2024. He continued, "Should weather pan out this winter, then you get to a 41-Bcf surplus by March, you've got emerging LNG over the course of the summer of 2025, and we could see prices closer to $4 per MMBtu."

For weekly updates on storage across all zones, learn more about the data from the IIR website.

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) platform 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).