U.S. natural gas supply and demand balance shifts amid outage at Freeport LNG
Note: 2H2022=second half of 2022; LNG=liquefied natural gas
A fire at Freeport LNG’s natural gas liquefaction plant led to the full shutdown of the facility on June 8. The shutdown reduced U.S. export capacity by an estimated 2.0 billion cubic feet per day (Bcf/d), and as a result, the U.S. benchmark Henry Hub natural gas spot price fell by $1.27 per million British thermal units (MMBtu) to $8.16/MMBtu on June 9. The Henry Hub price continued to decline through the end of June, ending the month at $6.54/MMBtu.
Prices fell largely because the outage at Freeport LNG decreased U.S. natural gas exports (a factor in U.S. natural gas demand), putting downward pressure on natural gas prices. In our July Short-Term Energy Outlook (STEO), we estimate that U.S. liquefied natural gas (LNG) exports averaged 10.1 Bcf/d in June, a 1.5 Bcf/d decline from May, as a result of the outage. We expect U.S. LNG exports to remain below average, at 10.5 Bcf/d in the second half of 2022 (2H22), which is 1.8 Bcf/d lower than in our June STEO forecast.
We expect the Henry Hub natural gas spot price will continue to decline from its June average of $7.70/MMBtu to an average of $5.97/MMBtu in the 2H2022. We expect a price decline mainly because fewer U.S. LNG exports will likely contribute to a lower overall U.S. natural gas demand outlook.
Amid lower natural gas prices, we forecast natural gas consumption in the industrial sector and electric power sector to rise, offsetting some of the drop in total demand. We expect total demand (consumption plus exports) to be down by 0.7 Bcf/d in 2H22.
By the spring of 2023, we expect U.S. natural gas production will increase and inventories will build back to their five-year (2017–2022) average levels, putting additional downward pressure on prices. The July STEO forecasts the 2023 Henry Hub spot price will average $4.76/MMBtu.
Principal contributor: Corrina Ricker