Driven in part by liquefied natural gas (LNG) exports, U.S. demand for natural gas will grow faster than supply this summer, leading to higher prices year/year, the U.S. Federal Energy Regulatory Commission (FERC) said in its 2022 outlook on summer energy markets.

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

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

The higher natural gas prices, alongside projected hotter temperatures and a slight increase in electricity demand, point to higher wholesale electricity prices this summer, according to the agency. FERC pointed to futures at electricity trading hubs showing gains from 77% to 233% versus year-earlier periods.

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

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

Sharply Higher Exports

Net natural gas exports are on track to rise 29.4% over “relatively elevated summer 2021 levels,” according to the report.

FERC staff pointed to increased LNG liquefaction capacity as the primary driver of higher exports, citing EIA projections for LNG exports to average 11.8 Bcf/d from June through September, versus 9.5 Bcf/d in the summer of 2021.

Meanwhile, FERC expects electric markets to have enough capacity to cope with higher demand and maintain reliability this summer. 

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

In addition to the sharp uptick in LNG exports, FERC expects gross pipeline exports of natural gas to grow by 0.3 Bcf/d this summer versus 2021. Gross pipeline exports averaged 6.3 Bcf/d to Mexico and 2.3 Bcf/d to Canada last summer.

“Mexico has expanded its natural gas pipeline infrastructure  over the past few years to

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

‘Urgent Need’ To Meet Challenges

FERC Chairman Rich Glick pointed to the latest summer assessment as evidence of the need to advance efforts to bolster reliability in the electric grid.

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

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

Meanwhile, the Industrial Energy Consumers of America trade group, following Thursday’s FERC meeting, called out U.S. LNG export growth as a key factor behind elevated domestic natural gas prices.

“Chairman Glick is fundamentally correct that the cause of higher natural gas and electricity prices are increased LNG exports,” CEO Paul Cicio said. “…But for LNG exports, U.S. prices would be about $3.50/MMBtu. Henry Hub natural gas prices at $8.00 equate to a $122 billion cost increase to consumers, greatly contributing to inflation.”

Andrew Baker contributed to this story.