Why Natural Gas Prices Quadrupled In Two Years Despite Record Production

Forbes ^ | 11/23/2022 | Robert Rapier

[SeekAndFind]

Following my previous article on U.S. natural gas production, I engaged in a Twitter discussion on the causes of the natural gas price surge over the past two years.

What ensued was a discussion of the influences in the natural gas markets in recent years. Indeed, the comment above is correct that most of the demand increase in U.S. natural gas production in recent years has been in power generation, as power plants phased out coal.

Over the past 20 years, natural gas devoted to power production has increased from 5.3 trillion cubic feet (Tcf) in 2001 (24 % of production that year) to 11.3 Tcf in 2021 (37 % of total production last year).

But my article identified liquefied natural gas (LNG) exports as a culprit in the recent price surge. I was asked in response how this could have helped drive natural gas prices from under $2/MMBtu in early 2020 to nearly $9/MMBtu in August 2022.

There are four things to consider here. First, the ramp up of LNG exports that I alluded to in the previous article.

Exponential LNG Export Growth

In 2015, U.S. LNG exports were equal to about 0.01% of U.S. production. By 2019, that had risen to 5.1%. By 2019 it had grown to 10%, and it will be even higher this year. That is a significant amount of incremental demand added in a short period of time.

LNG exports are small compared to what we use for electricity production at 3.3 Tcf. However, as one Twitter used correctly noted “Marginally this is a huge increase.”

[SeekAndFind]

To summarize the author's four points, this is largely why natural gas prices quadrupled in two years:

1. Natural gas exports are growing rapidly

2. The LNG market is being influenced by soaring prices in Europe

3. Strong natural gas demand has pulled natural gas inventories to a relatively low level

3. Fear often causes the oil and gas markets to overshoot

READ ABOVE ARTICLE FOR THE DETAILS

[SeekAndFind]

According to the author, The primary reason natural gas was at $2/MMBtu two years ago is that the 2019-2020 winter was one of the warmest on record. That meant that we exited the winter with natural gas storage levels at the top of the five year average range, as seen below.




Note the two areas circled in the graphic. In 2020, natural gas inventories were at the top of the normal range, and this year they have dropped to nearly the bottom. In fact, the drop to the bottom roughly coincides with Russia’s invasion of Ukraine.

Historically, natural gas inventories are a strong predictor of natural gas prices. Exit the winter with high inventories, and prices are going to be low. Head into winter with low inventories, and prices are going to be high.

Note that natural gas production levels are at record highs, so we can’t blame a lack of production on this issue. This is from soaring demand, led in the past two years by the fastest-growing LNG export market in the world.

[glorgau]

Unhhhh no. It’s because carbon is evil. All sources and repositories of carbon must be eliminated. So says science.

[TexasGator]

Adjusting for inflation my NG bill has actually gone down 2014 - 2022.

[maddog55]

We shouldn’t export any.. let Europe solve their own damn problems.

[Governor Dinwiddie]

Bans on fracking in states like New York and Massachusetts, both huge consumers of natural gas, force the rest of the USA to subsidize their enviro fantasies. Those states should be cut off the gas grid because while they have the ability to produce natural gas, but they choose not to.

Bans on exploration and fracking by Biden and his warlocks exacerbate the problem of increased foreign demand. In a free country, increased demand and high prices would drive increased exploration and production.

[Deaf Smith]

Been posting the US daily petroleum exports from eia.gov over the past five weeks and seem to go over everyone’s head.

[PGR88]

In 2015, U.S. LNG exports were equal to about 0.01% of U.S. production. By 2019, that had risen to 5.1%. By 2019 it had grown to 10%, and it will be even higher this year.

The article needs some editing, but regardless, its a good point, whatever the correct dates are

Also, people refer to gas at $2/mmbtu as something natural or reasonable. It is not

During the decade of 2010-2020, frackers lost a collective $300 billion. They poured cheap Federal Reserve money into holes in the ground. Sure, it gave us cheap gas for a period, but it bankrupted many of them.

Their CEO's and shareholders are not going back that. Especially now with inflation cost-push. I would say $4-$6/mmbtu is probably a more reasonable and sustainable number to sustain long-term investment (which isn't even happening, because of the global leftist war on gas and oil)

[pas]

So corporate greed. At least that is what Dem voters hear.

[MMusson]

We are currently exporting 11.5 BILLION CUBIC FEET of LNG per day.

The Chinese are negotiating for 3 TRILLION CUBIC FEET of LNG over the next 20 years.

[cymbeline]

“READ ABOVE ARTICLE FOR THE DETAILS “

Thanks for the summary. I looked at the article. A little bulked up with me, me, me.

[353FMG]

>>. All sources and repositories of carbon must be eliminated. So says science<<

No! So says Biden.

[353FMG]

>> It’s because carbon is evil.<<

How will we protect ourselves against the billions of cubic feet of methane continuously bubbling from the ocean floor on both east and west coast due to the immeasurable amounts of methane hydrates that we are blessed with?
Natural gas is our natural blessing. Celebrate and enjoy.

[eastexsteve]

Quadrupled? My shrinking royalty checks don’t show it.

[353FMG]

>> let Europe solve their own damn problems.<<

They can’t, and we can’t stop helping Europe. It is in our nature because Europeans founded us. Blood is thicker than common sense. As long as there is America, it will run interference for Europe. Who else can save their a$$es? Our Western society is an Europe-based society, not African, not Asian. Where do people migrate to? Not Africa, not Asia. America is the only direction of progress. Not Africa, not Asia. We are the only game in the world and we now have a leader who will F it up.

[maddog55]

America was founded because of Europe.. England specifically. Not by Europeans.

In reality Europe should kneel down and kiss our asses for saving them. They owe us big time.

[353FMG]

I hope you’re not holding your breath.

[Fraxinus]

Partially correct. The problem in MA is refusal to permit pipelines not lack of production. I think there are only a few places in MA where there is even any natural gas reserves, and IIRC they are not economic to produce. NY definitely screwed it self though, both the Utica and Marcellus Shales are potentially highly productive, even if neither extends east of the Hudson River.