LNG Deliveries Could Create U.S. Supply Pressures

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Steady U.S. natural gas production, coupled with higher exports and demand, could be a problem by the time winter rolls around, analysis from IIR Energy found.

U.S. natural gas production remains slightly below recent highs of around 108.3 billion cubic feet per day (Bcf/d) due to lower reported production along the Gulf Coast. The amount of feed gas running to liquefied natural gas (LNG) terminals, meanwhile, was down from recent highs close to 17 Bcf/d due to issues at the 15.3 million-metric-ton-per-year Freeport export terminal.

Freeport has been prone to hiccups since commercial operations began in 2019. IIR Energy issued an alert to clients warning that Freeport was out for two days starting July 11 due to a power outage. The plant reported a separate outage at the end of July.

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The United States is the world leader in natural gas production and in exports of LNG. Already the world leader in LNG exports by the time he took office in January, U.S. President Donald Trump is pressing for more, ostensibly for the sake of foreign energy security.

The United States recently passed Russia to take the No. 2 spot in the European natural gas market and a U.S. trade deal outlines volumes that are exponentially higher than recent years. But while U.S. supplies outpace demand, the LNG sector is weighing down on the equation.

Data from IIR Energy show total U.S. natural gas supplies are about 3.3% higher than last year, though feed gas running to LNG terminals is 33% higher than year-ago levels. Jesus Davis, a vice president of energy services at IIR Energy, said the nature of shale basins is changing, and perhaps not for the better.

So-called associated gas, gas that's accompanied by crude oil production, accounts for about 40% of domestic natural gas supplies. With federal estimates pointing to crude oil prices well below the point at which some drillers can make a profit, demand from LNG export facilities could be a problem domestically as upstream activity slows down.

"Flat production and increasing demand mean less natural gas is going into storage," Davis said. "This makes it likely that the U.S. market will face price shocks this coming winter or due to weather-related issues in the Gulf of Mexico this summer."

Prices are already elevated relative to year-ago levels. Henry Hub, the U.S. benchmark for the wholesale price of natural gas, was trading at around $2.90 per million British thermal units (MMBtu) on Friday, compared to $1.99 at this time last year.

The U.S. Energy Information Administration (EIA), the data arm of the Energy Department, expects Henry Hub to average $4.30/MMBtu by next year, a 10-year high should the forecast prove accurate.

Meanwhile, the U.S. economy is just starting to feel the pressure from Trump's trade policies. Over the 12-month period to July, the Bureau of Labor Statistics (BLS) reported the index for piped gas prices surged 14%.

On Thursday, the BLS reported the Producer Price Index, a measure of prices at the wholesale level, increased 0.9% month-on-month to July, the sharpest monthly increase since June 2022.

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 over 200,000 current and future projects worth $17.8 Trillion (USD).