Natural gas becomes critical international energy source

Just a few years ago natural gas was considered a nuisance that was produced with crude oil and had very little value. Today, natural gas is a much sought after commodity globally for keeping homes warm in the winter and a leading fuel for the generation of electricity.

In the U.S., natural gas generates 36% of the electricity followed by coal and nuclear at 20% each, according to the Energy Information Administration data for May. Wind and solar accounted for 16%.

Natural gas became even more critical internationally this year.

“Global gas and LNG markets have experienced a seismic shift as a result of Russia’s invasion of Ukraine,” according to a report issued this week from the international energy consulting firm Wood Mackenzie.

“Spot prices are rising to record levels in both Asia and Europe and as gas buyers – especially in Europe – search for viable alternatives to Russian gas, LNG contracting activity has accelerated,” Giles Farrer, head of gas and LNG Asset Research, said.

Natural gas exports from the U.S. increased in May by 28 billion cubic feet (Bcf).

Natural gas deliveries to LNG export terminals in South Louisiana increased by almost 0.1 Bcf/d to 7.6 Bcf/d and were essentially flat in South Texas this week at 2.3 Bcf/d. Overall natural gas deliveries to U.S. LNG export terminals increased by 0.1 Bcf/d to 11.1 Bcf/d this report week.

Twenty-one LNG vessels (eight from Sabine Pass, five from Corpus Christi, four from Cameron, two from Cove Point, and one each from Calcasieu Pass and Elba Island) with a combined LNG-carrying capacity of 79 Bcf departed the United States between August 18 and August 24, according to shipping data provided by Bloomberg Finance, L.P.

LNG exports in June were 11.1% higher than the daily rate of LNG exported in June 2021, according to EIA. “The average daily rate of LNG exports was also the highest for the month since 1997, when we began collecting LNG data,” EIA said. “In June 2022, the United States exported 10 Bcf/d of LNG to 31 countries.”

Wood Mackenzie said buyers have started signing up for long term deals in reaction to rising prices.

“Portfolio players and traders are setting themselves up to supply LNG to Europe in the medium term and Asia in the longer term (when European demand is expected to begin to fall) – by taking large volumes of U.S. LNG.” Farrer reported.

U.S. suppliers have a clear advantage against their competitors, the report stated. “They are fast to market: some projects can deliver in under 30 months from sanctioning, and with oil and spot LNG prices high, Henry Hub linked LNG is proving attractive to buyers.”

EIA reported natural gas spot price of $9 per mmBtu at Henry Hub this week. Bloomberg Finance, L.P. weekly average futures price for LNG cargoes in East Asia increased $9 to average $59 per mmBtu, and natural gas futures for delivery at the Title Transfer Facility in the Netherlands, the most liquid natural gas spot market in Europe, increased $12 to a weekly average of $77 per mmBtu, according to EIA.

Alex Mills is the former President of the Texas Alliance of Energy Producers.