U.S. natural gas demand and prices are “off to the races,” driven by a convergence of supply and demand-related factors as the world emerges from Covid-19, IHS Markit’s Jack Weixel, senior director, said Monday.
Liquefied natural gas (LNG) exports to the global market, pipeline exports to Mexico, and capital discipline by upstream producers all have contributed to a “whiplash” in prices from below $2.00/MMBtu in late 2020 to current prices well above $3.00, Weixel told the LDC Gas Forums Northeast Forum in Boston.
Publicly traded exploration and production (E&P) firms largely “are sticking to their capex guns, meaning that they are actually constraining their drilling response,” Weixel told the in-person gathering. This restraint is reflected in rig counts as well as the amount of money producers are spending in the field, he said, “which translates into essentially flat production.”
IHS Markit expects Lower 48 gas production to exit 2021 at around 92 Bcf/d.
While upstream supply has seen a decent post-pandemic recovery, “it is not doing near what it needs to do to keep up with” LNG and Mexico demand, Weixel said.
Total U.S. gas exports including LNG and Mexico have averaged a staggering 17.1 Bcf/d over the last five months, Weixel said.
U.S. dry gas supply to date is up 3.6 Bcf/d this summer to date versus summer 2020, which in a normal year would be a robust increase.
However, LNG feed gas demand is up 4.8 Bcf/d for the same period and Mexico export demand is up 1.3 Bcf/d, Weixel said.
The International Energy Agency said this month that gas flows to Mexico via pipeline rose 15% year/year during the first half of 2021, and are likely to grow by an estimated 10% over the 2020-2024 period.
U.S. natural gas storage inventories as a percentage of the five-year average, meanwhile, are down 20% year/year, Weixel said, offering further evidence of resurgent demand.
Not all producers are pumping the brakes on investment, however.
The gassy Haynseville and Marcellus shale plays have emerged as the main source of incremental supply, Weixel said.
He explained that while the Marcellus and Utica are dominated by investor-owned E&Ps, private equity-backed drillers are more prevalent in the Haynesville.
These producers are not beholden to the same investor pressures that have kept their publicly owned counterparts from ramping up production, according to Weixel. “Their mission is to produce gas and make money for their ownership.” He noted that Haynesville gas output is up by almost 2 Bcf/d since last summer.
IHS Markit expects 2022 to be “a barn-burner year,” with production reaching 96.7 Bcf/d by December, according to Weixel.
The Haynesville and Marcellus are expected to drive much of the growth. Associated gas output also is likely to return to pre-pandemic levels, he said.
Weixel noted that IHS Markit is now forecasting the Mountain Valley Pipeline, which will add 2 Bcf/d of exit capacity out of the Northeast, to enter service in the fall of 2022.
The research firm expects the global LNG market to loosen a bit in mid-2022 as new liquefaction projects come online, causing U.S. feed gas demand to flatten.
Weixel said IHS Markit expects gas demand from the power sector to decline year/year through next year, driven by new wind and solar capacity coming online.
“Certainly, this renewables penetration thing is real, it’s not a theory,” Weixel said.
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