As U.S. LNG exporters race to be the next project built on the Gulf Coast, natural gas demand is forecast to soar through the decade, causing near-term supply and infrastructure constraints throughout the market.
Speaking at the Gulf Coast Energy Forum in New Orleans, RBN Energy LLC’s David Braziel, director of fundamental analysis, said the question is where all of the gas supply required to feed the Gulf Coast’s liquefied natural gas exports will come from.
The short answer, Braziel said, is that the Permian and Eagle Ford basins and Louisiana's Haynesville Shale will be “critically important” to meeting demand from Brownsville, TX to eastern Louisiana. However, the Haynesville’s ability to ramp-up and sustain production in the long-term still presents challenges for the market.
Braziel said the outcome of whether producers will be able to respond to demand “depends on what natural gas prices actually do. You have associated natural gas driving into the market at almost any price, pressing down on natural gas prices. We also have rapidly growing exports that are relatively consistent in supporting U.S. natural gas prices.”
But as evidenced over the past two years, Braziel added, the domestic gas market's exposure to price volatility has only grown along with U.S. LNG exports.
Volatility Rises
NGI is currently tracking 142.26 million metric tons/year (mmty) of export projects that are under construction or proposed to be built by 2027. After a bevy of contracts and financial deals following the war in Ukraine, more than 70 mmty is under sale and purchase agreements and almost 10 mmty is under tentative deals.
By the end of the decade, around a quarter of U.S. natural gas demand could come from LNG projects on the Gulf Coast and in Mexico.
With more of the fundamentals driving domestic production latched to demand overseas, NGI Senior LNG Editor Jamison Cocklin said price volatility should be expected to increase as well.
“You might not always be able to predict” where events will send prices in the United States, “but one thing is clear, exports have made the domestic market more volatile,” Cocklin said. “We saw that last year when Freeport LNG went down.”
The next wave of domestic gas demand comes as LNG exports have already been ascending past previous records. Natural gas demand for LNG exports averaged 12.7 bcf/d during the first week of October, according to Tudor, Pickering, Holt and Co. That was 1.7 bcf/d more than the same period last year.
Year-to-date, LNG exports are around 0.8 bcf/d higher than last year. 2022 was a record year for exports, with the U.S. shipping out almost 400 million tons to mostly Asian buyers, according to Kpler data.
Price Incentives
NGI’s Henry Hub Fixed Forward Curve shows prices dipping into the low-$3/MMBtu range starting in early 2024 before rising again to $3.50 in mid-summer. Henry Hub could climb through the rest of 2024 before peaking at $4.61 at the beginning of 2025, when the first trains of two additional Gulf Coast LNG terminals currently under construction are expected to be online.
Dry gas production in the Haynesville is projected to grow by 24% over the next five years to over 5 Bcf/d, according to RBN.
However, East Daley Analytics’ Jack Weixel, vice president of analytics, said the firm’s outlook on Haynesville prices also shows “a lack of momentum” for economic incentives to drive Haynesville production growth after 2026.
A part of the price conundrum for production and supply comes from the sheer concentration of feed gas demand into one particular area between southeast Texas and Southwest Louisiana.
As QatarEnergy and ExxonMobil’s Golden Pass LNG and Sempra Infrastructure’s Port Arthur LNG come online within the next five years, Braziel said gas demand between Louisiana and the Beaumont-Port Arthur, TX corridor could increase by 4.8 Bcf/d.
That would mean that near the end of the decade, export facilities in the 60 miles between Beaumont, TX and Lake Charles, LA could make up 13.1 Bcf/d of U.S. gas demand.
"As that's happening, from a pricing perspective, it means that the natural gas basis in East Texas and Houston Ship Channel will strengthen relative to north Louisiana,” Braziel said.
