Surging LNG Exports Expose The U.S. To Natural Gas Price Swings
Soaring U.S. LNG exports have made natural gas a global commodity and the United States vulnerable to global price volatility. As American exports of liquefied natural gas are set to grow further this decade, the once-isolated U.S. natural gas prices will become increasingly linked to the pace of LNG exports and global supply and demand. As Europe has been scrambling to replace Russian pipeline gas supply since Russia’s invasion of Ukraine, growing volumes of U.S. LNG are making their way to Europe instead of Asia. Exporters are also signing long-term deals to ship the gas from existing and future LNG export facilities to international markets to underpin final investment decisions for the new plants. With more domestically produced natural gas feeding export facilities and helping Europe stock up on LNG, U.S. natural gas prices rose last year, and gas home heating bills were high amid higher wholesale and retail gas prices, which utilities passed on to customers. This year, as the shocks of the energy crisis elsewhere subsided and gas prices fell, U.S. wholesale natural gas prices have fallen back to the levels from before the Russian invasion of Ukraine. However, “many residential utilities are still, to this day, charging their customers near-record fees for gas,” Clark Williams-Derry, energy finance analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), wrote this week. Related: Oil Markets Confused and Underwhelmed by OPEC+ Cuts Residential gas prices have started to ease but remain well above their average for the previous decade. Utilities across America have said in the past year that the soaring U.S. LNG exports have raised domestic gas prices. “With U.S. LNG exports slated to almost double over the next 5 years, U.S. ratepayers should brace themselves for more volatility,” Williams-Derry says, and offers a solution, according to IEEFA: “Curtail new gas export projects. We’ve already dug ourselves into a hole. The smartest thing to do now is to stop digging.” But the U.S. is set for LNG capacity expansion this decade, and its exports will further increase next year as two export terminals come online—Golden Pass in Texas and Plaquemines in Louisiana. The U.S. already exported more LNG in the first half of 2023 than any other country, the EIA said earlier this year. With average LNG exports of 11.6 billion cubic feet per day (Bcf/d) during this period, or 4% more than in the first half of 2022, the United States was the world’s top LNG exporter ahead of Australia and Qatar. In October, U.S. LNG exports hit the second-highest monthly level on record, just below the record from April 2023, per estimates from data provider LSEG cited by Reuters. Still, the EIA expects lower average natural gas bills for U.S. consumers that heat their homes primarily with natural gas this winter heating season compared with last winter, when residential retail natural gas prices were higher than they had been in the previous ten winters. Natural gas is the primary heating fuel for 46% of U.S. homes, according to the Census Bureau’s 2022 American Community Survey. The retail price of natural gas and the amount of natural gas consumed determine how much consumers will pay. The wholesale U.S. natural gas spot price at the national benchmark Henry Hub started last winter heating season averaging $5.66 per thousand cubic feet (Mcf). This November, the EIA expected the Henry Hub price to be 45% lower than last year, averaging $3.12/Mcf. “The lower wholesale natural gas prices this year have led us to expect a 21% ($3.16/Mcf) decline in the U.S. average residential retail price for the 2023–24 winter,” the EIA said. ADVERTISEMENT Customers should still expect relatively high prices because lower wholesale prices do not immediately translate into lower retail prices for residential consumers. Changes in retail natural gas prices lag changes in wholesale natural gas prices, largely due to the nature of utility regulation, the EIA says. With LNG a global commodity, U.S. residential consumers are not as isolated from global price swings and supply and demand as they were just a few years ago. By Tsvetana Paraskova for Oilprice.com More Top Reads From Oilprice.com: Russia’s Urals Crude Price Drops but It’s Still Above the $60 Cap Why Oil Prices Fell After OPEC+ Announced Deeper Output Cuts OPEC to Host “Special Pavilion” at COP28
Related Knowledge Center: Liquefied natural gas
Driven by plentiful natural gas produced from shale plays, the United States began exporting liquefied natural gas in 2016 when the Sabine Pass terminal in Louisiana opened and shipped its first cargo. Since then, additional capacity, or trains, have been added to Sabine Pass, and terminals have become operational in Cameron Parish, La.; Hackberry, La.; Cove Point, Md.; and Corpus Christi, Texas. The Energy Information Administration projects that U.S. LNG export capacity will reach 8.9 billion cubic feet per day (Bcf/d) by the end of 2019, making it the third largest in the world, behind Australia and Qatar. The tariff war with China has the potential to impact some final investment decisions for additional terminals in the coming months.
Related Knowledge Center: Energy security and pricing
The United States achieved net energy independence in 2020, but that has not insulated the nation from the roiling of energy markets in the wake of the Russian invasion of Ukraine. Europe has been a large consumer of Russian natural gas, and the effort to wean itself, with the help of the United States, has strained markets and endangered global efforts to address the climate crisis.