The natural gas export boom is creating massive demand on US production and connecting US prices to the rest of the world.
By Wolf Richter for WOLF STREET.
Natural gas futures hit $9.40 per million Btu earlier in the day, the highest since the dirt was young, well, since the huge twin peaks between 2005 and 2008. In trading of the afternoon, the price fell again to around $9, after having tripled a year ago, when it was $2.98, and having more than tripled from the $2-3 which predominated from 2011 to spring 2021.
Natural gas prices can rise and fall, periodically driving out hedge funds that have gotten caught on the wrong side. But this time it’s different; this time, large-scale structural changes in the US natural gas market have been underway for years: the boom in natural gas exports, as LNG has created a connection with demand and prices in the rest of the world .
And the fracking boom that caused prices to crash in the United States from 2009, while prices soared elsewhere, is now being tapped to export LNG, and we’ve already said goodbye to those gas prices natural plummeted by $2 to $3 per million Btu.
The hydraulic fracturing boom that took off 15 years ago has made the United States the largest producer of natural gas in the world. Before the boom, the United States was a major net importer of natural gas (via LNG globally and via pipeline from Canada), and prices were influenced by world prices and supply limitations. offers in the United States.
Production from the fracking boom created such huge supply in the United States in 2009 that the price crashed. Between 2003 and 2021, marketed production of natural gas has almost doubled. Note the production peak in 2018 and 2019:
This surge in production in the United States triggered a series of events: major natural gas producers, such as hydraulic fracturing pioneer Chesapeake, filed for bankruptcy; electricity generation has massively shifted from coal to natural gas, causing coal miners to file for bankruptcy; and large industries have sprung up in the United States around cheap natural gas, including fertilizer producers that use natural gas as a feedstock.
And starting in 2016, more and more LNG export terminals were built to arbitrate the cost differential between US natural gas and the global LNG price; and pipeline capacity was added to export more natural gas from US producing areas near the border to Mexico.
Natural gas exports by pipeline to Mexico have grown at a healthy pace (green line). But LNG exports have exploded (purple line), from next to nothing in 2016, to over 3.5 trillion cubic feet in 2021. And total exports reached 6.7 trillion cubic feet in 2021, or about 18 % of production marketed in the United States:
LNG exports require very capital-intensive liquefaction facilities that are connected to production areas by pipeline. Export capacity has grown from less than 1 billion cubic feet per day (Bcf/d) in 2015 to approximately 12 Bcf/d by the end of 2021. Other large-scale LNG export facilities are in construction and more have been approved, and even more are in the early stages of the process.
As U.S. export capacity continues to grow, global demand for U.S. LNG is increasingly competing with U.S. demand, intensifying the link between global LNG prices and natural gas prices in the USA.
And those very cheap natural gas prices from 2009 to mid-2021 that consumers, power generators and industrial companies have benefited from, and that have bankrupted many oil and gas producers specializing in fracking for natural gas, and which bankrupted coal miners, is now a thing of the past. Much higher prices, in line with world prices, are what the United States faces now.
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