Viewpoint: US gas output set to outstrip export gains

US natural gas production this winter will likely outstrip increases in LNG exports, reversing a trend that led to higher prices in 2021.

US LNG exports, a key driver of the rally in Nymex gas prices over the past year, are expected to increase further this winter because of additional liquefaction capacity along the Gulf coast and as service begins at the 1.6 Bcf/d (45mn m³/d) Calcasieu Pass terminal in Louisiana.

Capacity at Cheniere Energy's Sabine Pass export terminal in Louisiana will rise to about 4.6 Bcf/d through facility modifications and as train 6 reaches full service, according to the US Energy Information Administration (EIA). Federal regulators also authorized Cheniere to boost output from Corpus Christi LNG by 14pc, lifting capacity there to 2.4 Bcf/d. The first LNG cargo from train 6 at Sabine Pass and the first LNG from Calcasieu Pass are expected before the end of this year.

At the same time, US gas production is projected to rise, potentially reaching a record high by the end of 2022 and surpassing the peak reached ahead of the Covid-19 pandemic, the EIA said. Those competing factors could reshape the market in the coming months by allowing supply to catch up with demand and put downward pressure on prices.

"While increased exports will boost demand, we expect 2022 supply to meet the call," according to a research report from Bank of America. Rising gas production and the addition of more gas to storage this fall "has helped dampen some of the more extreme bullish scenarios" for gas prices, the analysts noted.

Stocks built on mild fall, winter

Mild weather during the so-called shoulder months of September and October and at the start of heating season led to large seasonal injections, while above-normal temperatures in November curbed withdrawals early in the heating season. Inventories still started the winter at lower-than-average levels but were far higher than many had expected.

In addition, gas output has started to grow more rapidly on higher oil and gas prices. US dry-gas output, which excludes volumes lost in production and processing, is forecast to average 95.3 Bcf/d from December through March 2022, or 4.4 Bcf/d higher than a year earlier. That production gain should more than offset the projected 1.8 Bcf year-over-year increase in LNG exports.

For the rest of the winter heating season, which ends in March, the US will probably export about 11.1 Bcf/d as LNG, according to the EIA.

LNG exports skyrocketed over the summer — reaching an average of 9.5 Bcf/d, up by 6.4 Bcf/d from a year earlier and outstripping year-over-year production growth of 4.3 Bcf/d. That sharp increase in demand helped propel Nymex prompt-month prices above $6/mmBtu in October, the highest in more than a decade. Prices may not revisit those highs anytime soon.

Bank of America said it expects US gas prices next year to average $3.45/mmBtu as this year's higher energy prices accelerate production growth. The EIA projected that prices would fall from an average of $4.58/mmBtu from December to February to $3.98/mmBtu next year on slower export growth and rising gas production.

By Jason Womack