Published: October 13, 2021
By: Concentric Staff Writer
A global supply crunch for natural gas and extremely high prices are rapidly changing market dynamics, causing food shortages and energy company failures in Europe and adding to a complicated energy picture in China, while the United States heavily increases its exports of the resource as domestic usage drops.
U.S. exports of liquified natural gas (“LNG”) are set to grow as demand ahead of winter is strong from Asia. China has experienced recent power outages and government curtailing of electricity during cold weather periods due to high prices for natural gas and coal. Europe is seeing extreme natural gas price spikes in its wholesale market, with a record high price of 155 Euros ($179) per MWh on Oct. 6 at the benchmark Dutch TTF hub.
According to the U.S. Energy Information Administration (“EIA”), U.S. exports of liquefied natural gas continued to grow in the first six months of this year, averaging 9.6 billion cubic feet per day. This is an increase of 42 percent, or 2.8 Bcf/d, from the same period in 2020. This increase illustrates a pattern of continued volatility from last summer, when U.S. LNG exports fell to record lows, but then rose to consecutive record highs in November and December 2020.
A colder-than-normal winter led to low LNG inventories in Asia and the U.K., pushing up demand for U.S.-sourced gas as prices at the benchmark Henry Hub in the U.S. fell below prices for international gas and LNG, EIA said.
“Similar to 2020, Asia remained the top destination for U.S. LNG exports from January through May in 2021, accounting for 46% of the total,” EIA said in a recent Today in Energy report. “Asia was followed by Europe, which had a five-month average share of 37%. Exports to Latin America also increased, particularly to Brazil, which is experiencing its worst drought in more than 90 years.”
According to the CEO of Russian gas company Gazprom, Alexey Miller, the Chinese gas market “is the most dynamic and fast-growing one, and it shows simply unbelievable consumption growth rates every year. “ Miller made his comments Sept. 20 at the General Meeting of International Business Congress in St. Petersburg.
According to Miller, in the first half of this year, Chinese gas consumption increased by 15.5 percent and imports swelled by 23.8 percent compared with the previous year. By the end of this year, consumption in China is expected to be 360 billion cubic meters and the volume of imports to be 160 billion cubic meters. Consumption in the Asia-Pacific region is expected to grow by 1.5 trillion cubic meters, 60 percent of which will be imported, he said.
In the United Kingdom, shortages of natural gas are leading to food shortages—beef and pork—as New York-based company CF Industries shut down fertilizer plants in Northern England. Natural gas is used in animal slaughtering, the production of chilled and baked goods, and carbonated drinks, according to the British Meat Processors Association.
The constrained market is also creating concerns in the U.S. On Sept. 17, Industrial Energy Consumers of America, a trade group for industrial energy customers, wrote to U.S. Energy Secretary Jennifer Granholm, urging her to take action under the Natural Gas Act (“NGA”) to prevent a supply crisis and price spikes for U.S. consumers by requiring LNG exporters to reduce export rates so U.S. inventories can reach 5-year average storage levels.
“U.S. consumers, the health of the economy, and national security should take priority over LNG export profits,” the IECA letter says. “Secondly, we urge you to place a hold on all existing, pending, and prefiling permits and approvals on LNG export facilities in the lower 48, and conduct a review of whether these facilities are in the public interest under the NGA. We are certain that they are not.”
The U.S. winter strip natural gas price at the benchmark Henry Hub recently hit $5.50/MMBtu, more than double from a year ago, according to the letter. It cites EIA data that working natural gas stocks are around 3,006 Bcf, 17 percent lower than a year ago and 7 percent lower than the five-year average. The U.S. would need to inject more than 90 Bcf/week to hit the five-year average by November, a rate more than 40 percent higher than the current average weekly build-up. Rising natural gas prices also push up the price of natural gas liquids, a feedstock raw material for plastics and chemical production which is vital to the supply chain for thousands of products, adding to inflation, the group said.
Another factor driving up exports is decreased usage of natural gas in the U.S. for power generation. EIA, in a recent Short-Term Energy Outlook (STEO), said it expects gas consumption levels to decrease in 2021 and 2022 from 2020 levels.
“We expect U.S. natural gas consumption in 2022 to increase slightly from 2021 to 82.6 Bcf/d as increasing consumption in the industrial sector offsets declining consumption in the electric power sector, though total 2022 consumption still remains lower than the 2020 level,” EIA said in the STEO.
When natural gas prices are high in the U.S., utilities typically switch to lower-cost coal, EIA said, noting that higher prices at Henry Hub in the first half of this year pushed down gas usage in the sector compared with the same period last year. EIA expects the Henry Hub price to average $3.63/MMBtu this year, which is more than $1.60/MMBtu above than the 2020 average. This will drive a decline in gas consumption by the U.S. electric power sector of 2.7 Bcf/d or 8.3 percent from last year, driven by high Henry Hub prices and competition from renewable energy resources. EIA expects natural gas consumption in the U.S. industrial sector to increase next year to 23.8 Bcf/d from an average of 23.2 Bcf/d this year.
In China, pipeline and LNG imports in January-August were 79.3mn metric tons, a 22% jump from the same period last year, according to data from China’s customs department. The country imported 10.44mn mt of gas in August, up almost 12 percent from the previous year. Widespread power outages are being reported in early October in households, businesses and factories in China, with supplies tight and prices high.
Global supply chain issues are also affecting energy dynamics, with reported long lines for petrol in the U.K. and British troops on standby to deliver fuel amid a driver shortage, according to the BBC. According to press reports, there is fuel at refineries and ports but not petrol stations.
These trends illustrate how supply and demand dynamics in one country or region drive those in other regions and demonstrate the tightly woven relationship between energy resources in the U.S. and the rest of the world.
For inquiries related to this article, please contact firstname.lastname@example.org.
All views expressed by the contributors are solely the contributors’ current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, or related companies. The contributors’ views are based upon information the contributors consider reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.