Robust LNG Exports Fueling Healthy Natural Gas Price Levels

A new deal between China and Venture Global is the latest in a string of US LNG commitments to Asia.

Concept rendering of Venture Global's Plaquemines LNG liquefaction facility in Louisiana.
SOURCE: Venture Global

International thirst for US-borne liquefied natural gas (LNG) is on the rise, keeping upward pressure on natural gas prices across the country as inventories fall and winter approaches. US natural gas prices have increased by about 150% compared to last year and today stand at around $5.70/MMBtu, and years of investment in new liquefaction infrastructure is one of the reasons. Domestic demand for gas also rose over the summer, driven by warmer-than-usual days regionally and increased electricity demand to help cool things down.

According to the US Energy Information Administration, working gas in storage was estimated at 3,611 Bcf as of 29 October. This represents a net increase of 63 Bcf from the previous week. Stocks were 313 Bcf less than last year at this time and 101 Bcf below the 5-year average of 3,712 Bcf.

About 10% of the nation’s natural gas production is now exported as LNG primarily to Asia and that number continues to grow. For evidence, look no further than this week’s deal between Venture Global LNG and China Petroleum & Chemical Corp. (Sinopec). The pair signed two 20-year sales and purchase agreements (SPA) for Sinopec to receive a total of 4 mtpa of LNG from Venture Global’s Plaquemines LNG export facility, located in Plaquemines Parish Louisiana.

In addition, UNIPEC, a Sinopec subsidiary has agreed to purchase 3.5 mtpa of LNG from Venture Global’s Calcasieu Pass LNG facility for a shorter duration. The deals represent the largest single LNG supply deal ever signed by a US company and will double imports of US LNG to China, according to Venture Global.

Both export facilities are under development.

“Venture Global is proud to enter into this new and exciting long-term partnership with Sinopec, and soon become the largest US LNG exporter to China,” said Mike Sabel, chief executive of Venture Global LNG. “Today’s announcement will accelerate our combined efforts to lower carbon emissions and provide a low-cost, reliable, and secure energy supply to China. From day one, Venture Global has been on a mission to drive fuel switching around the world from coal to natural gas, and we are thrilled to equip Sinopec with a large supply of US LNG to do that and assist China in its energy transition.”

US natural gas levels are forecast to remain low for the winter season for several reasons including the overall drilling slowdown hampered by the pandemic. Anticipation of a cold winter, much like last year, will also keep supplies tight. Then there is LNG exports. While prices are on the uptick in the US, they are even higher in places like Asia. That makes bringing in US LNG more attractive economically.

“In the US, even with improved storage levels relieving pressure domestically, record export demand is expected to continue, with lower but elevated TTF [Title Transfer Facility] and Asian spot prices ensuring the uptake of any LNG the US can produce,” said Nikoline Bromander, gas market analyst at Rystad Energy in a statement. “As such, Henry Hub prices remain strong and are now responding primarily to LNG demand. While production impairments from Hurricane Ida are yet to be fully reversed, we have noticed a faster-than-expected reactivation of Shell’s offshore GOM [Gulf of Mexico] assets, adding to our expectations of a supply uptick this quarter.”

The Bureau of Safety and Environmental Enforcement’s last public report on the effects of Hurricane Ida posted in late September found more than 540 MMcf/D of gas production still offline due to the storm. A significant portion of that number was thought to be related to the Shell shut-ins.