World Natural Gas Production and Delivery the Modern Geopolitical Weapon

Access to secure natural gas production and delivery is a key determinate for European energy security as it moves aggressively to wean itself off Russian natural gas supplies. Russia has weaponized it’s energy exports. With the U.S. the world’s largest producer of natural gas American exports of liquefied natural gas are expected to remain strong for some time. EIA forecast in the June STEO that U.S. LNG exports will average 11.7 billion cubic feet per day (Bcf/d) during 2Q22 and 3Q22 and 11.9 Bcf/d for all of 2022, a 22% increase from 2021. Around 16% of U.S. production is exported, mostly by LNG tanker and also by pipeline to Mexico, with now the US competing with Qatar and Australia as the world’s top LNG exporter.

LNG Ship
LNG Transportation

Germany’s dependance on Russian supplies is fueling concerns about adequate supplies ahead of summer, let alone next winter.

US Natural gas lags oil and coal in the amount of energy generated worldwide, however it has been gaining. Gas production has risen about 80% since 2006 in the US, as hydraulic fracturing (fracking) has seen Texas the top natural gas producing state at 10.5 trillion cubic feet in 2021, trailed by Pennsylvania at 7.7 trillion, Alaska at 3.5 trillion, and Louisiana at 3.4 trillion.

In the US as Spring nears an end attention for traders and hedgers turns domestically to heat and Hurricanes. With the Russian invasion of Ukraine, it has also turned to European exports as a key price factor. LNG is capped by how much you can ship, hence the Freeport impact. This new demand for US gas from overseas adds to a new element to the pricing structure for the US consumer, who have been paying much less than most overseas end users. Now there is a new demand for that gas through LNG.


Global Natural Gas Quick Overview


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Via Ole S Hansen @Ole_S_Hansen

  Natural Gas Production

IEA in the June STEO forecast U.S. dry natural gas production to average 95.7 Bcf/d in June and to average 97.9 Bcf/d in 2H22, which would be 2.7 Bcf/d (3%) more than in 2H21. We expect dry natural gas production to average 101.6 Bcf/d in 2023.

Rystad Energy analysis had Permian Basin drilling permits reaching new highs in March, roughly doubling levels from late 2021 and early 2022. The increase provides further evidence for a natural gas supply boom later this year, according to EBW Analytics Group adding a recent Kansas City Fed energy survey indicates that Midcontinent and Rockies producers plan to boost production by an average 7.5% by 4Q2022 despite difficulty finding labor and investor pressure to maintain capital discipline.

“While we continue to expect major natural gas production gains later this year, however, they may arrive too late to avert bullish pressure in early to mid-summer,” EBW senior analyst Eli Rubin said.

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The EIA’s latest 914 report showed dry gas production slumping 2.59 Bcf/d month/month as every key state saw output slide in the coldest January since 2014. The Appalachian tri-state area saw production fall 1.03 Bcf/d from December, while Texas and New Mexico output slid a combined 0.81 Bcf/d.

Around 97% of production over the next two years will come from the Lower 48 states (L48), excluding the Federal Offshore Gulf of Mexico (GOM). The other 3% will come from Alaska and the GOM.

U.S. natural gas production growth will primarily come from the Appalachia region in the Northeast, the Permian region in western Texas and southeastern New Mexico, and the Haynesville region in Texas and Louisiana. EIA forecast that the Permian region will contribute 2.2 Bcf/d to production growth in 2022 and 1.2 Bcf/d in 2023.

EIA

Natural Gas Exports Watch

Some US LNG export projects vying for FID:

  • Corpus Christi Stage 3 — 10mtpa (mostly contracted)
  • Plaquemines — 10mtpa (mostly contracted)
  • Driftwood — 11mtpa (mostly contracted)
  • Cameron T4 — 6mtpa
  • Freeport T4 — 8.4mtpa
  • Commonwealth — 8.4mtpa
  • Rio Grande — 11mtpa
  • via Stephen Stapczynski @SStapczynski
US natural gas exports (pipeline and LNG) in billion cubic feet per day (EIA) @staunovo

Freeport LNG

The needs to assess to clarify the implications of a potentially prolonged outage at the Freeport liquefied natural gas (LNG) terminal. This implies gas will flow to domestic consumption or into storage.

Freeport LNG Explosion

LNG feed gas demand fell to a four-month low under 10.4 Bcf/d in the latest estimates last Wednesday show. Prior to the Freeport explosion, with the global energy crisis LNG exports volumes were over 13Bcf, a two-month high last week. That put exports near the 14 Bcf-plus record.

Biden Promises

On Friday March 25, 2022, from a EU/NATO meeting in Poland , the Biden administration and European Union (EU) leaders announced a new effort to ensure Western supplies of natural gas to the continent through 2022 and beyond. The United States and the EU now have a joint goal to send an additional 15 billion cubic meters of LNG to EU countries in 2022, about 1.5 Bcf/d, with “expected increases going forward,” according to the White House.

U.S. exporters have little room to ramp up more in the near term, and Western governments do not have the power to order private companies in the LNG market to direct shipments to Europe.

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LNG

EIA forecast in the June STEO that U.S. LNG exports will average 11.7 billion cubic feet per day (Bcf/d) during 2Q22 and 3Q22 and 11.9 Bcf/d for all of 2022, a 22% increase from 2021. The agency cited additional U.S. LNG export capacity that has come online.

Even before the invasion of Ukraine by Russia since the end of 2021, the EU and the UK imported record-high LNG volumes because of low natural gas inventories. Europe has become the main destination for U.S. LNG exports and accounted for 74% of total U.S. LNG exports during the first four months of 2022.

STEO Highlights 

  • EIA estimate U.S. LNG exports averaged 11.6 Bcf/d in May, which was 1.5 Bcf/d higher than last year and 0.2 Bcf/d higher than the average from January through April 2022.
  • EIA forecast U.S. LNG exports will average 11.7 billion cubic feet per day (Bcf/d) during 2Q22 and 3Q22 and 11.9 Bcf/d for all of 2022, a 22% increase from 2021
  • High exports are being supported by high international LNG prices, as well as by additional export capacity created by a new U.S. LNG export facility, Calcasieu Pass LNG, which continues to ramp up exports.
  • EIA sees 2023 US natural gas consumption at 85.15 bcfd in the June STEO report, down from a forecast 85.28 bcfd in May.
  • EIA sees 2022 US natural gas consumption at 85.33 bcfd in the June STEO report, down from a forecast 85.73 bcfd in May.
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Natural Gas feed to LNG facilities: Sabine Pass, Cameron, Elba Island, Cove Point, Freeport & Corpus Christi combined

US Gulk Coast LNG Netbacks

  ++Charts via RonH @RonH999 – Visit Ron for daily updates 

Natural Gas Mexican Exports Watch

US natural gas exports to Mexico established a new monthly record in June 2021 surpassing 7 Bcf/d from then March-to-date average exports to Mexico continued to be flat against the previous month, at barely 5.6 Bcf/d, according to Wood Mackenzie. In the preceding five years, the average February-to-March growth rate was slightly above 4%.

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Mexico pipeline exports via @ronh999

US Storage Level is Below the 5 Year Average

  • Current Storage Level: 2311 Bcf
  • Storage 2020/Same Week: 2572 Bcf
  • 5Yr Avg/Same Week: 2,633 Bcf
EIA Storage Report

Looking ahead to the next few EIA storage reports we will have eyes on salt storage to see if the lost LNG feed gas demand from Freeport’s outage head there. Basically, it’s power demand increases or salt injections closer to peak hurricane season.

Natural Gas Reserves

The US only ranks fourth in proven natural gas reserves, at 446 trillion cubic feet, as estimated by BP. Russia is first at 1.3 quadrillion, followed by Iran and Qatar.

Natural Gas Market Price Influence Factors

Bearish Factors Include

  • Economic damage and reduced natural gas demand caused by the Covid pandemic,
  • Warm U.S. winter that resulted in weak demand for natural gas for heating.
  • Over long spec positions
  • Freeport LNG Outage
  • Expectations that the high level of oil prices would increase shale drilling and natural gas extraction as a by-product

Bullish Factors Include

  • Record foreign demand for U.S. nat-gas as flows to U.S LNG export terminals on April 18 rose to a record 11.921 bcf (data from 2014) and after U.S. LNG exporters loaded a record 81 cargoes in November, breaking the previous record of 75 set January of 2020, (This was before the Russian invasion of Ukraine – which has led to even greater demand for US LNG)
  • The lower level of oil prices and ESG politics reduced shale drilling and natural gas extraction as a by-product
  • Tighter U.S. natural gas supplies that are down -14.8% y/y and -2.6% below their 5-year average.
  • High power burns
  • Perception that gas supply and demand are more inelastic than ever before.
  • Over short spec positions

European Energy Crisis

The energy crisis pounding the world with unheard of prices was impacting the domestic pricing. In Europe we saw up near record highs again:

  • Hotter weather hitting demand
  • Russia halting transfer
  • German rationing
  • Freeport LNG down
  • Norway supply to rebound.
  • Putin constant threats
via @ole_S_Hansen

German benchmark 1-year forward electricity contract surges to €300 per mega-watt hour — excluding 2 days in December 2021, that’s a record high. via Javier Blas @JavierBlas

With Germany the epicenter of Russian gas bans the real threat of demand destruction is plain for all to see. Germany’s trade balance came in at minus €1bn in May, which is the first negative print since 1991 due to its energy problems & weakness in manufacturing.

The EU also is considering requiring natural gas storage facilities to be filled at least 80% capacity for next winter. Given that European supplies are below historic averages coming out of winter, this would almost certainly keep demand for U.S. LNG elevated through 2022.

Europe’s dependence on Russia’s gas in one map via @michaeltanchum

Daily Europe natural gas inventory by year.

Daily Europe NG inventory by year. Europe NG storage is at 57.6% of capacity. That is -3.0% vs 5yr avg.


 Natural Gas Canada Import Watch

Source via RonH Energy

Natural Gas Demand Watch

The electricity-generating sector accounted for 41% of US natural gas consumption in 2021, with industrial users at 30%, residential 17%, and commercial 12%, according to the US Energy Information Administration.

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via RonH Data ‏@ronh999

Natural Gas Nuclear Power Watch

Source: via RonH Data ‏@ronh999

ALERT Three Mile Island nuclear shut down permanently on Friday afternoon 9/292019.

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EDF cut its nuclear output forecast as it realized that “stress corrosion” issues affecting some of its reactors will require more checks and repairs @SStapczynski

Sources: TradersCommunity, EIA, RonH Energy, BP

From The TradersCommunity US Research Desk