Driving assessment

US regulator sees summer demand for natural gas outpacing supply, driving prices higher

Driven in part by liquefied natural gas (LNG) exports, U.S. demand for natural gas will grow faster than supply this summer, driving prices higher year-over-year, the Federal Energy Regulatory Commission (FERC) said. ) of the United States in its 2022 summer energy outlook. markets.

Compared to summer 2021 levels, total domestic production of dry natural gas is expected to increase 3.4% this summer, while total consumption is expected to increase 4.8%, according to a summer assessment prepared by staff at the FERC.

Due to Mexico’s dependence on pipeline imports from the United States, natural gas transactions in Mexico are usually indexed on US sites such as Henry Hub, Waha or Houston Ship Channel.

According to the agency, higher natural gas prices, along with forecasted warmer temperatures and a slight increase in electricity demand, point to higher wholesale electricity prices this summer. FERC pointed to power trading center futures posting gains of 77% to 233% from the prior year periods.

FERC cited Energy Information Administration (EIA) forecasts that U.S. dry natural gas production is expected to reach 96.9 Bcf/d this summer. This comes as exports are expected to drive fuel demand higher in the coming months, according to the agency’s assessment.

“The largest increase in natural gas demand is expected to come from an increase in natural gas exports,” FERC staff said in its report to the Commission.

Strong increase in exports

Net natural gas exports are expected to rise 29.4% from “relatively high levels in the summer of 2021,” according to the report.

FERC staff pointed to increased LNG liquefaction capacity as the main driver of increased exports, citing EIA projections for LNG exports at 11.8 Bcf/d on average. from June to September, compared to 9.5 Bcf/d in the summer of 2021.

Meanwhile, FERC expects power markets to have enough capacity to handle higher demand and maintain reliability this summer.

“However, extreme operating conditions such as major heat waves, wildfires, hurricanes and other severe weather events can stress operations,” the agency warned. “These risks are particularly acute in the West, Texas and parts of the Midwest.”

In addition to the surge in LNG exports, FERC expects gross pipeline natural gas exports to increase by 0.3 Bcf/d this summer compared to 2021. Gross pipeline exports reached in average 6.3 Bcf/d to Mexico and 2.3 Bcf/d to Canada last summer.

“Mexico has expanded its gas pipeline infrastructure in recent years to

allow it to rely increasingly on imported natural gas from US pipelines,” the FERC researchers said.

“Urgent need” to meet the challenges

FERC Chairman Rich Glick pointed to the summer’s latest assessment as evidence of the need to advance efforts to bolster power system reliability.

The assessment “projects 30 GW of additional capacity this summer compared to last summer,” Glick said. “But the challenges described in the summer assessment also demonstrate the urgent need for the Commission to significantly advance initiatives that will better ensure that electricity markets are ready to meet the challenges of reliability. .

“The Commission’s work to facilitate transmission infrastructure, modernize electricity markets, and protect our nation’s electricity infrastructure from reliability threats has never been more important.”

Meanwhile, the trade group Industrial Energy Consumers of America, following Thursday’s FERC meeting, called growth in US LNG exports a key driver of rising domestic natural gas prices.

“Chairman Glick is fundamentally correct that the cause of rising natural gas and electricity prices is increased LNG exports,” CEO Paul Cicio said. “…But for LNG exports, US prices would be around $3.50/MMBtu. The price of Henry Hub natural gas at $8.00 equates to a $122 billion cost increase for consumers, which is a major contributor to inflation.

Andrew Baker contributed to this story.