Dec. 6, 2021
Q&A Fact Sheet and Interview with NGSA and CLNG CEOs
In order to better understand the natural gas market this winter we sat down with Center for LNG Executive Director Charlie Riedl and Natural Gas Supply Association President and CEO Dena Wiggins to get their insights into the market.
This winter, U.S. Energy Information Administration (EIA) is predicting a rise in natural gas prices, why is that?
Dena Wiggins: EIA is projecting higher energy prices across all sources this winter, not just natural gas. COVID-19 impacted demand patterns and stressed the supply chain in 2020 and 2021. These lingering effects have played a key role in the predicted higher price of energy and many other commodities. As the economy continues to rapidly recover and grow, natural gas producers are responding by growing production to meet demand. Production this November was up 4 billion cubic feet a day (Bcf/d), an increase of about 5 percent over last year. It’s early in the month now, but December is showing even greater increases. As more production flows to market, it will place downward pressure on prices, which lines up with EIA’s prediction of declining natural gas prices in March of 2022.
As we look at the natural gas market this winter, why are prices so different among different regions of the country?
Dena Wiggins: Over the last 12 years, the average price of natural gas has decreased significantly across the U.S. due to the shale revolution. Although higher natural gas prices are projected this winter, prices are still considerably lower than they were a decade ago. However, during periods of cold weather and high demand in the Northeast, prices in the Northeast’s daily spot/cash market often increase more sharply than other regions because of a lack of available pipeline capacity compared to other regions. Investment in new infrastructure is needed to deliver more natural gas to customers, like utilities, in the Northeast. But instead, billions of cubic feet per day of pipeline capacity in the Northeast have been cancelled or delayed since 2018. While the Northeast has had limited new infrastructure, other parts of the country, such as the Permian basin in Texas and New Mexico have seen close to 9 Bcf/d in additions.
COVID-19 impacted the natural gas market in 2020 and 2021, but what are some other factors impacting the natural gas market this winter?
Dena Wiggins: As we always say in our Winter Outlooks, weather is a major factor in the natural gas market every summer and winter. A hot 2021 summer led to higher-than-average use of natural gas for electricity and less natural gas going into storage for later use this winter. The National Oceanic and Atmospheric Administration (NOAA) is predicting a 1% colder winter, which typically results in slightly higher winter demand for natural gas for heating. Storage also plays a vital role in the winter supply portfolio. This winter, storage is 3% lower than the 5-year average but within the recent historical range at 3,623 Bcf. The United States has the world’s largest natural gas storage capacity, with over 4 trillion cubic feet.
With America playing a larger role in global energy markets, is exporting American natural gas as LNG raising prices here at home? Will we run out this winter?
Charlie Riedl: Exports are not the driver of higher prices this winter. In fact, year over year growth of LNG exports is only 1.7 Bcf/d. To put these numbers in perspective, total daily demand for natural gas this winter is projected to only grow about 1 Bcf/d on average compared to last winter – that is less than 1% growth. LNG exports actually play a key role in stabilizing the market by incentivizing production across the country. U.S. LNG exports are a vital tool for countries looking to make good on their Paris and COP26 climate goals and help the U.S. continue to be a leader on climate issues.
Dena Wiggins: And to answer your question about will we run out of gas, the answer is very simple, no. The natural gas resource base continues to grow with each estimate, with the latest survey from this year showing 3,368 trillion cubic feet of natural gas. LNG exports represent less than 0.001% of the total gas resource base and less than 1% of U.S. proven reserves.
Would restricting or limiting LNG exports benefit customers this winter?
Charlie Riedl: Not only would restricting LNG exports fail to benefit customers here at home this winter, it would also set a dangerous precedent and throw domestic and global markets into an uproar, causing serious damage to U.S. credibility as a climate leader. As we talked about before, LNG exports send important signals to the market to increase production: by limiting exports, you are discouraging production of natural gas, ultimately leading to higher prices for consumers.
What can customers do to protect themselves from higher prices this winter?
Dena Wiggins: Many times, people see higher prices mentioned in the news, but often those prices represent spot, or “cash” daily, prices that are short lived, very regional, and do not represent the market as a whole. One thing to point out about prices this winter, or any season, is that there are a variety of ways that customers like utilities and industrial consumers, buy their natural gas. The interconnected nature of the U.S. natural gas market allows utilities and industrial customers to secure a mix of natural gas supply from different regions, using tailored contract terms and storage to limit their exposure to swings in demand. They can further diversify their natural gas supply portfolios by buying natural gas under different terms and different lengths, from the daily spot market to longer terms of a month or more.
Click here to read our full Q&A: 2021-2022 Natural Gas Market Conditions and LNG factsheet. To learn more about the natural gas market this winter, check out NGSA’s 21st annual Winter Outlook examining the five factors driving the natural gas market this winter, the economy, weather, demand, supply, and storage. Additionally, Dena Wiggins recently joined the Energy Solutions podcast to discuss the natural gas market this winter.