Natural Gas On Fire
We look at drivers of natural gas price increases
Prices topped $8/MMBtu recently, the highest price since 2008
Strong domestic demand, surging LNG exports and flattish production have changed the market structure from one of oversupply to undersupply
Only 3 basins have grown in recent years - Appalachian, Haynesville, and Permian, partially driven by years of low prices, but also as a result of limited takeaway capacity after numerous pipeline cancellations
U.S. producers are eager to supply global customers, especially now with Russian gas supply uncertainty, but additional linkage to global markets is likely to result in sustained higher prices for U.S. consumers
Natty En Fuego
Like many commodities around the world, 2022 is proving to be a historic year for U.S. natural gas. After years of a $2-4/MMBtu range, prices have broken out to $8/MMBtu and may have room to run.
U.S. dry gas production has been flattish since 2019
And only 3 basins are growing gas production in the U.S. - Permian, Haynesville and Appalachian
Meanwhile, LNG exports have taken off in the last 5+ years
Domestic demand has started the year strong
Storage for this time of year is near the lower range versus the prior ten years
The jump in production tied to LNG exports starting in 2016 is visible in the data
If the U.S. expects to continue to grow LNG exports to supply global natural gas markets, domestic production needs to increase. Higher prices have been needed to incentivize additional drilling - which we have now - but takeaway in the northeast is problematic. There are no short-term solutions.
Further, there is a risk that the natural gas growth we saw in the past cannot be replicated in the future. The U.S. may be exporting away its low natural gas price advantage, which has benefitted consumers and industry. Only time will tell.