America’s natural gas market was largely disconnected from the world for decades. Transportation limits meant prices reflected local demand and supply only. But the industry’s infrastructure has changed, and it means that U.S. natural gas is going global. That will continue to have an effect on domestic prices.
The first facility to export liquefied natural gas in the lower 48 states came online in 2016, and America is now the world’s largest LNG exporter, with peak capacity of about 14 billion cubic feet per day. New facilities under construction will raise export capabilities an additional 5.7 billion feet by the end of 2025, says the U.S. Energy Information Administration.
The demand for U.S. natural gas outside of the states has risen faster than production, though. Between June 2019 and June of this year, LNG exports more than doubled. Meanwhile, natural gas production only increased 7% according to the EIA. As a result, LNG exports now take up over 10% of America’s production of natural gas, or about double what it was in 2019.
The result is easily seen in the commodity’s costs. Prices this summer are the highest they’ve been since 2008. The spot price of Henry Hub natural gas is $7.85 per million British thermal units on Sept. 7, over three times as high as prices averaged in September 2019.
The U.S. natural gas boom could eventually fizzle. Some lawmakers and domestic users have pushed for export limits to lower prices. Big producers like Qatar are also increasing export capacity substantially. And environmental concerns could eventually dent demand as solar, wind, and nuclear power capabilities ramp up.
Yet multi-year LNG contracts are increasingly the norm. Investors’ preference for fossil fuel firms to prioritize returning capital over investment probably will limit domestic gas production growth. Plus the gap between U.S. prices and those elsewhere is still very wide. The Dutch benchmark price for October is almost eight times the current U.S. Henry Hub price on an equivalent basis thanks to decreased Russian imports. And the price of LNG in North Asia is seven times as high.
That means American gas will still be in high demand. And as U.S. drillers export their fuels, domestic prices will rise.
