The CME/NYMEX Henry Hub prompt futures price has fallen sharply in recent months and 2023 is likely to be one of the most bearish in recent history. But in the longer term, the stage is set for tighter equilibrium, price increases and increased volatility. After deceleration in 2022-23, LNG export capacity addition will be rapid and intense over the next several years. As they do, they will outpace production growth, which will increasingly depend on pipeline and other midstream expansion. In other words, 2023 will be the last blow to the shale era surplus. We got a taste of what 2022 might look like, but just how much of a blow to the gas market? In today’s RBN blog, we discuss the supply and demand trends that will shape the gas market over the next five years.
In Part – 1In this article, we summarize the various factors that caused gas prices to fall from 14-year highs to close to $10/MMBtu six months ago and the prices seen in recent weeks below $3/MMBtu. started with Closure of Freeport LNG Export Facility About 2 bcf/d of demand was immediately wiped out from the market after the fire last June. On top of that, mild fall weather reduced demand even further. Production reached a one-day high of 100 bcf/d or more, And the final death knell for bullish prospects in the near term? The most bearish start to the new year in at least 13 years — possibly ever. An exceptionally warm January crushed demand and domestic consumption fell to a six-year low for January and lagged more than 14 bcf/d year-on-year, while Freeport outages kept exports flat. Whereas, the hot weather remained wellhead freeze-off Bay and dry gas production crossed 100 bcf/d on a monthly average basis for the first time in January, which is 6.2 bcf/d higher than last year. As a result, the supply-demand balance was the lowest we’ve seen in January since at least 2010, and ~20 bcf/d lower than last year.
These trends compound an already bearish outlook for 2023. That’s because for the first time since 2016, there is a slight increase in expected LNG export growth this year. Freeport is in the process of resuming operations, but this is a return to existing capacity. And while Venture Global’s Calcasieu Pass will be commercialized this year, it was already taking feedgas at a rate consistent with full use for most of last year. Also, no new export capacity is due online this year. On the other hand, Cum 48 Dry Gas production is on track to post a healthy year-over-year gain. To the extent that storage has to absorb the rest, we are likely to see a surplus swell, which will mean not only lower prices than in 2022, but a return to the kind of rangebound price action we saw pre-covid .
But as we also noted in Part 1, the 2023 downturn is likely to be short-lived, as the next wave of LNG export capacity begins to rise in 2024 and accelerates in the coming years (at the latest project timelines in the upcoming more blogs). Overall, production will most likely remain elevated, but as the market strengthens, the timing mismatch between LNG exports and production growth will likely see it touch-and-go in a few years. This tells us about our five-year outlook and the shape the balance is likely to take year by year.
Figure 1 below summarizes the components of the Lower 48 gas supply-demand balance equation in our middle-case scenario through 2028, assuming the current futures curve. The vertical layers in the background represent annual averages for the supply components, including dryland production (navy) and net imports from Canada (red). (LNG imports, which used to be a more significant source of supply, are now minimal to zero depending on the time of year.) The columns in the foreground link the various sources for demand for the gas, including lease, plant and piped fuel Are. (gray), residential and commercial (peach), industrial (brown), gas-fired power generation (yellow), exports to Mexico (green), and LNG exports (blue bars at top of stack).
Figure 1. RBN’s Bottom 48 natural gas supply-demand balance mid-case scenario. Source: RBN
We’ll begin with our full-year outlook for 2023. Based on actual data to date, RBN’s domestic demand – which includes power, industrial, res/com, and lease, plant, pipe losses and storage combined – averages 87 bcf/d assuming normal weather, through 2022 Down about 1 bcf/d. (Last year had a colder-than-normal winter and a warmer-than-normal injection season, which contributed to record consumption). Exports to Mexico are expected to average 6.3 bcf/d, up from 5.7 bcf/d last year, while LNG feedgas deliveries (blue bar segment) are forecast to come in at 11.7 bcf/d, ~1 bcf/d year-over-year. Year after year This brings total demand, including exports, to about 105 bcf/d, net 0.8 bcf/d year-on-year. However, at that level, demand will fall short of supply (dashed black circle).
On the supply side, dry gas production in 2023 is forecast to average ~102 bcf/d, up about 5 bcf/d year-over-year. It assumes that production from Appalachia will be constrained by pipeline capacity, but other basins will grow unfettered as midstream capacity builds up in time to support growth. Net imports from Canada responded to the tight Lower 48 gas market last year, but we expect it to decline from 4.8 bcf/d this year to 5.5 bcf/d in 2022. This will leave the lower 48 balance longer by 1.7 bcf/d. Supply in 2023 (106.8 Bcf/d total supply minus 105.1 Bcf/d total demand).
However, it will be a completely different story in the coming years as the next wave of LNG projects come online but become increasingly dependent on the next pipeline project to keep production going (see) where is it blog series). The surplus will turn into a deficit as LNG export capacity additions begin to outpace production gains. Based on what RBN identifies as our Tier 1 or better LNG projects LNG Voyager The report says, after slowing in 2022-23, LNG capacity additions will accelerate, increasing feedgas demand by an average of ~3 bcf/d each year between 2024 and 2026, and 1.8–1.9 bcf/d in 2027 and 2028. 14 bcf/d demand increase from LNG exports alone compared to 2022 levels (and this does not include capacity additions in Canada or Mexico). Combined with domestic demand, this means that in our mid-case scenario total demand increases by ~18 bcf/d from 2022 levels (averaging 3 bcf/d per year) to 122.2 bcf/d by 2028.
By comparison, our middle-case scenario for total supply including imports is expected to rise to a much more modest 16.6 bcf/d by 2028 from 119 bcf/d over the same period. Breaking this down further, we expect production to increase by 17.9 bcf/d to a total of 114.8 bcf/d. After this year, we expect growth to moderate and average 2.5 bcf/d per year through 2028. Net imports from Canada are also expected to decline somewhat in coming years, as LNG exports emerge as a major demand source in Western Canada and compete with it. Pipeline exports to production and pipeline capacity. What this means for our mid-case supply-demand scenario is that the lower 48 balance goes from being a supply to –tall ~2 Bcf/d in 2023 Small By 2024, and worse, negative 4.3 Bcf/d by 2027.
In other words, the Lower 48 gas market is headed for a period of gas shortages, driven by piecemeal production growth dependent on export growth and midstream development. Of course, there are risks to this approach. A huge storage surplus this year could spill over into next year and delay the onset of gas shortages. Delays in the addition of LNG export capacity, or extended disruptions such as freeport outages, would have a similar effect. On the other hand, there’s the midstream constraint that stymy production growth could bring it down too soon. And the season will continue to be a wildcard. But the bottom line is that with the onslaught of LNG exports, the potential for oversupply in the Lower 48 gas market beyond 2023 is greatly reduced.
“The Final Countdown” was written by Joey Tempest, lead singer of Europe. It appears as the first song on Europe’s self-titled third studio album. Countdown. Released as a single in February 1986, the song peaked at #8 on the Billboard Hot 100 singles chart. Songwriter Tempest stated that the song’s lyrics were inspired by David Bowie’s “Space Oddity”. The polyphonic synthesizer riff on the song is reminiscent of Bill Conti’s intro. rocky Theme Song, “Gonna Fly Now.” Both songs are popular at sporting events. “The Final Countdown” synthesizer riff was played by Mike Michaeli on a Roland JX-8P synthesizer. Personnel on the record were: Joey Tempest (lead vocals), John Norum (guitar, backing vocals), John Levene (bass), Mike Michaeli (keyboards, backing vocals), and Ian Hoagland (drums, backing vocals).
album, Countdown, It was produced by Kevin Elson, and recorded between September 1985 and March 1986 at Powerplay Studios in Zurich, Soundtrade Studios in Stockholm, Master Sound Studios in Atlanta, GA, and Fantasy Studios in Berkeley, CA. Released in May 1986, the album went to #8 on the Billboard Top 200 Albums chart and has been certified 3x Platinum by the Recording Industry Association of America. Five singles were released from the LP.
Europe is a Swedish rock band formed in 1979 in Upplands Väsby, Sweden by vocalist Joey Tempest, guitarist John Norum, bassist Peter Olsson and drummer Tony Reno. He made his professional breakthrough in Sweden in 1982 by winning a television talent show, rock sms, They rose to international fame in 1986 with their hit album, Countdown. The group has sold over 10 million records worldwide. The band took a hiatus in 1992, with members Tempest, Norum and Ki Marcel releasing solo albums before regrouping in 2003 and continuing. He has released 11 studio albums, eight live albums, five compilation albums, one EP and 35 singles. He was inducted into the Swedish Music Hall of Fame in 2018. Nine members have passed through the group since its formation. Europe still records and tours.