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High export demand for LNG and higher domestic natural gas consumption pushed U.S. gas demand to higher levels than supply last year, resulting in the highest average Henry Hub spot price since 2008, the Federal Energy Regulatory Commission (FERC) said in its 2022 State of the Markets report.
Yet, U.S. natural gas prices have dipped in recent months due to warmer than usual winter weather which required lower volumes of withdrawals from storage. As a result, working natural gas stocks in storage is around 24% more than the five-year average, and 36% more than last year at this time. This puts downward pressure on Henry Hub prices, which saw two consecutive cuts in price forecasts in two months from the U.S. Energy Information Administration (EIA). Last year, the jump in natural gas prices globally after the Russian invasion of Ukraine and the energy crisis in Europe increased the call on U.S. LNG, whose exports rose by 9% to average 10.6 billion cubic feet per day (Bcf/d), FERC and the EIA said in their 2022 overviews.
“Tight LNG supplies contributed to increasing international prices, which reached record levels, incentivizing U.S. LNG exports,” FERC said in its report.
“The approval and expansion of multiple LNG export facilities in 2022 increased LNG liquefaction capacity to serve the growing international LNG demand to higher-priced regions.”
Unlike in previous years, Europe was the top destination of U.S. LNG exports in 2022, with U.S. shipments soaring by 141%, the EIA said.
Europe accounted for 64% of U.S. LNG exports in 2022. Four countries—France, the UK, Spain, and the Netherlands—accounted for a combined 74% of U.S. LNG exports to Europe.
The surge in exports to Europe meant that U.S. LNG exports to Asia declined as China and other importers of U.S. LNG scaled down buying due to the Chinese zero-Covid policy last year and the high prices which South Asian importers couldn’t afford.
The most notable reduction was in U.S. LNG exports to China, which decreased by 78%, the EIA said.
The overall increase in U.S. LNG exports, combined with higher domestic gas demand, sent U.S. benchmark prices to multi-year highs last year.
The Henry Hub averaged $6.38 per MMBtu in 2022, up from $3.82/MMBtu in 2021.
“This was the highest average spot price at Henry Hub since 2008, and the largest absolute year-over-year average price increase since 2005,” FERC researchers said in the report.
“In 2022, natural gas demand was driven by increased domestic natural gas consumption and LNG exports. Although production did not keep pace with demand, it continued the growth trend seen in the last decade,” they added.
This year, Henry Hub prices have dropped due to milder winter weather in January and February in many parts of the United States. Natural gas inventories rose to above the five-year average, weighing down on prices.
In its latest Short-Term Energy Outlook, the EIA cut – again – its estimates for natural gas prices for this year and next. The EIA now sees prices averaging $3.02 per MMBtu this year, down by 11.2% from its previous forecast of $3.40 per MMBtu. The EIA has also lowered its forecast for natural gas prices for next year to $3.89 per MMBtu, down from its estimate of $4.04 per MMBtu made in its previous report.
As a result of the mild winter and low natural gas consumption in the residential and commercial sectors, the EIA expects 2.4% less U.S. natural gas consumption in 2023 than in 2022.
“Although we reduced our Henry Hub price forecast from last month’s STEO, we still expect natural gas prices to increase in the coming months,” the EIA said.
The Henry Hub spot price averaged $2.38 per MMBtu in February, the lowest monthly average since September 2020.
According to the EIA, prices are set to go up from the February lows due to rising demand from the Freeport LNG export facility reopening, seasonal increases in demand in the electric power sector, and relatively flat domestic gas production for the rest of 2023 as producers reduce drilling in response to lower prices.
