Reshuffling the Deck | High Stakes for Natural Gas

U.S. LNG projects are poised to benefit most from the contracting rush. Sponsors signed long-term agreements in 2022 to supply nearly 50 million metric tons/ year (mmty) of LNG, mainly to Asian buyers and portfolio players. European offtakers accounted for only 11.4 mmty of the total.

As Europe experiences what could be one of the warmest winters on record, Kpler Inc.’s Eleni Papadopoulou, lead gas and LNG analyst told NGI that fears of a severe supply crunch and rationing are becoming “somewhat subdued” thanks to a lifeline of “ample regional gas and LNG stocks.”

CNOOC has reportedly forecasted that China’s natural gas imports will be 7% higher year/year in 2023. The additional demand could test Europe’s efforts to bring in more cargo as buyers there work to restock inventories for winter 2023-2024 without Russian imports.

Pipeline maintenance on NGTL can also cause AECO prices to collapse as molecules have nowhere to go. As a result, producers and marketers of Western Canadian gas have sought to maximize their exposure to higher prices in the United States and/or Eastern Canada.

While Mexico will continue to meet a majority of its natural gas needs through pipeline imports principally from Texas, domestic production is showing growth. Pemex is targeting full-year average natural gas production of 4.67 Bcf/d in 2023, up 20% from the 3.88 Bcf/d averaged in the third quarter of 2022.

January 2023 brings with it new hope for Mexico’s natural gas industry. It is an illusion to think that the environment for private investment will improve. But Mexico natural gas production is on the up.

Sempra, for its part, announced a memorandum of understanding in early 2022 with CFE to develop two new liquefied natural gas projects, and to resume operation of the Guaymas-El Oro pipeline in northwestern Mexico, which has been out of operation since 2017.

Legislatively, it may be a tricky year for the U.S. energy industry. President Biden had two years to pass climate-related legislation and roll back some less stringent oil and gas regulations in a Democratic-controlled Congress. Now, the GOP holds slim control of the House.

Without more infrastructure to both deliver more gas to domestic markets and to move fuel to the Gulf of Mexico for export, the United States could struggle to meet energy needs at home as well as a string of future LNG facilities expected to launch later this decade.

A large majority of spending will be directed toward traditional oil and gas operations, with a still small but growing share directed toward new energy businesses. Europe’s emergent need for LNG amid the displacement of Russian gas will drive considerable investment over the next several years, including a push to install more multi-decade-lived assets and further supporting natural gas’s incumbency.

Key domestic markets could be turned upside down in 2023 as midstream bottlenecks leave gas stranded in producing basins. LNG developers on the Gulf Coast are in a race to boost liquefied natural gas exports to capitalize on rising demand in Europe and Asia.

North America, however, is still seen with a solid gain in capex for 2023. “While we forecast growth to decelerate in both North America and internationally, North America’s impressive 18% end-of-year growth follows a near record 44% in 2022".

"Increases in U.S. natural gas production, relatively flat liquefied natural gas exports and declining domestic consumption in the electric power and industrial sectors will limit upward pressure on prices in 2023."