As the globe emerges from Covid-19, U.S. natural gas demand and pricing are “off to the races,” driven by a convergence of supply and demand-related factors, according to IHS Markit senior director Jack Weixel. Weixel told the LDC Gas Forums Northeast Forum in Boston that LNG exports to the world market, pipeline exports to Mexico, and capital discipline by upstream producers had all contributed to a “whiplash” in prices from below $2.00/MMBtu in late 2020 to the current levels well above $3.00.
Weixel told the in-person meeting that publicly traded exploration and production (E&P) companies mainly adhere to their CAPEX guns, which means they are restraining their drilling response. This restraint is reflected in rig counts and the number of money producers spends in the field, resulting in practically flat production. As a result, lower 48 gas output is expected to peak around 92 Bcf/d by 2021, according to IHS Markit.
While upstream supply has improved since the epidemic, it is nothing near what it needs to be to stay up with” LNG and Mexico demand, according to Weixel. Over the last five months, total U.S. gas exports, including LNG and Mexico, have averaged 17.1 Bcf/d, according to Weixel. In addition, this summer’s dry gas supply in the United States is up 3.6 Bcf/d compared to summer 2020, which would significantly increase in an average year.
During the same period, however, LNG feed gas demand increased by 4.8 Bcf/d, while Mexico export demand increased by 1.3 Bcf/d, according to Weixel. According to the International Energy Agency, gas flows to Mexico via pipeline increased 15% year over year in the first half of 2021 and are expected to increase by 10% during the 2020-2024 decade.