U.S. shale producers have been obstinately effective at pumping out natural gas, even as winter and summer weather has been almost maliciously mild.
The result is an ever-crammed storage locker of methane that isn’t needed. Natural gas working inventories were 3,179 billion cubic feet (Bcf) on July 1, the U.S. Energy Information Administration (EIA) said. That’s despite natural gas inventories in March ending at 2,494 Bcf, the highest end-of-withdrawal-season level on record.
By July 1, natural gas stocks climbed 23% higher than the average inventory from 2011 to 2015.
What the U.S. needs is escape valves. Federal administrators say that slowly, those valves are opening. By next year, gas inventories will be markedly different.
“For the first time since 1957, the United States is on track to export more natural gas than it imports,” said EIA administrator Adam Sieminski. “This will occur during the second half of next year as more liquefied natural gas export capacity comes online.”
The EIA’s equation combines exports to Mexico and LNG shipments.
EIA's estimated natural gas production in June averaged 79.1 Bcf/d, which is down roughly 1 Bcf/d from the record daily average production in February.
EIA expects production to rise through 2016 and 2017 in response to forecast price increases and increases in LNG exports.
EIA expects natural gas production to rise by 1% in 2016 and by 2.4% in 2017.
However, at the same time, natural gas pipeline exports to Mexico have risen to 3.7 Bcf/d in late June from 3.1 Bcf/d last year.
EIA expects that growth to continue because of demand from Mexico's electric power sector and because of flat natural gas production in Mexico.
“Gross pipeline exports are expected to increase by 0.7 Bcf/d in 2016 before falling by 0.2 Bcf/d in 2017 to an average of 5.3 Bcf/d,” the EIA said.
If that pans out, it would represent a 43% increase in daily natural gas demand.
LNG pipeline deliveries are also expected to increase. EIA projects gross exports will rise to an average of 0.5 Bcf/d in 2016, with the startup of Cheniere's Sabine Pass LNG liquefaction plant in Louisiana. Cheniere sent out its first cargo in February.
EIA projects gross LNG exports will average 1.3 Bcf/d in 2017, as Sabine Pass ramps up capacity—more than triple the natural gas LNG terminals received at the end of June.
As exports grow, net imports of natural gas will decline to 0.2 Bcf/d in 2017 from 2.6 Bcf/d in 2015 and the U.S. would become a net exporter of natural gas during the second half of 2017.
“Although U.S. natural gas exports are increasing, there are still abundant supplies to meet domestic demand as natural gas inventories are expected to be at a record high for the start of the upcoming winter heating season,” Sieminski said.
For now, however, the build is on. Natural gas storage injection runs from April through October and the EIA projects inventories will hit a crescendo of 4,022 Bcf by Halloween. Levels would be the highest end-of-October level on record.
Henry Hub spot prices are forecast to average $2.36/million British thermal units (MMBtu) in 2016 and $2.95/MMBtu in 2017, compared with an average of $2.63/MMBtu in 2015, EIA said.
Darren Barbee can be reached at dbarbee@hartenergy.com.
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