FGE: US gas price sensitive to LNG exports

The future price of natural gas in the US depends greatly on development of LNG exports, the outlook for which remains unclear, says Facts Global Energy (FGE).

In an analysis comparing its projections for LNG exports with a base-case production forecast by the Energy Information Administration’s Annual Energy Outlook (AEO), FGE sees problems.

FGE’s LNG export expectations are much greater than EIA’s: 40 million tonnes/year in 2020 and almost 80 million tpy in 2025, assuming full utilization of capacity, vs. 5.5 million tpy in 2020 and almost 30 million tpy in 2030 in the AEO reference case.

Expected pipeline exports to Mexico plus LNG exports at FGE’s projected rates would absorb all incremental gas production in the AEO reference case.

“Obviously, this is an untenable outcome as there is no room for domestic demand growth,” FGE says. “It implies that Henry Hub prices must rise higher than the AEO reference-case projections both to incentivize domestic gas supply and ensure that domestic demand is adequately served.”

The AEO reference-case price projections are $4.87/MMbtu in 2025 and $5.40/MMbtu in 2030, with domestic consumption growing 0.7%/year during 2010-30.

“Given the large number of variables at play, it is challenging to nail down exactly how high Henry Hub could rise if LNG export capacity materializes as anticipated by FGE and is fully utilized,” FGE says.

The firm notes AEO’s scenario assuming high economic growth and low oil and gas resources shows Henry Hub gas prices rising to $6-7/MMbtu by 2030. But that scenario for economic growth assumes the addition of only about 35 million tpy of LNG equivalent to US consumption in comparison with the reference case.

“Clearly, if LNG exports increase by some 50 million tpy more than projected by the AEO, US gas prices could settle at a higher plateau—perhaps $7-8/MMbtu if domestic demand remains robust,” FGE says.