- No new major US LNG plants expected until 2024
- Lack of additions drives expectations of stronger domestic supplies
- Stage set for lower Henry Hub prices as drilling picks up
According to S&P Global Inc. article published on December 28, 2022, US liquefaction capacity additions are poised to flatline in 2023, supporting softer domestic prices and allowing storage levels to refill as the largest driver of US gas demand growth starts to stall until the next wave of LNG export facilities is constructed.
The lack of new liquefaction capacity coming online in the US in 2023, combined with tepid additions globally, stands to keep pressure on the global gas market as it grapples with extreme volatility and persistently high prices.
"The US production response isn't expected until 2024 at the earliest," Ross Wyeno, lead analyst for LNG Americas at S&P Global, said in a recent interview.
Venture Global expects the first phase of its up to 20 million mt/year Plaquemines LNG facility in Louisiana to come online at that time. The 18.1 million mt/year Golden Pass LNG terminal, which has been under construction since early 2019, is also expected to start production in late 2024. But a dearth of investment decisions to build US LNG terminals in recent years leaves little else until the next wave of facilities comes online from late 2024 onward.
Global gas crunch
Commercial activity tied to US LNG projects surged in 2022 as Russia's invasion of Ukraine upended the global gas market, increasing the likelihood additional US export projects will advance to construction. But building major LNG export terminals takes years.
US developer New Fortress Energy has said it could add one or more 1.4 million mt/year floating export facilities in the Gulf Coast in 2023, although permitting challenges could force a delay.
Cheniere Energy, the biggest US LNG exporter, recently estimated that the annual global LNG growth rate has plunged from more than 10% in 2018 to about 2% currently. Cheniere Chief Commercial Officer Anatol Feygin told investors during the company's most recent earnings conference call that the global LNG market had not seen liquefaction additions that modest since 2012, when prices in an imbalanced market "clearly signaled the need for new LNG capacity."
"Given the long lead time required to develop LNG projects, we expect market balances to potentially remain tight for the next several years, exacerbated by the crisis in Europe and the reduction of Russian supply to the European market," Feygin said during the call Nov. 3.
The lack of new LNG export facilities in 2023 stands to constrain natural gas supply and force global gas markets to balance on demand destruction and existing stocks, according to S&P Global's 2023 energy outlook. Europe, struggling with an energy crisis, could see even tighter gas and power markets in 2023 as it faces the first full year without significant volumes of Russian pipeline gas.
Utilization of US liquefaction facilities remained strong headed into the final weeks of 2022, with feedgas flows that topped 13 Bcf/d in mid-December, S&P Global Commodity Insights data shows. And those volumes, already around 13% of US dry gas production, stand to rise in 2023 with the restart of the Freeport LNG export plant in Texas.
Freeport, which has been offline since a fire in June, could restart partial production by the end of 2022 and add some 2 Bcf/d of feedgas demand in January, according to the operator.
Better supplied domestic market
Meanwhile, domestic gas production is expected to rise by nearly 3 Bcf/d in 2023, according to S&P Global.
"Prices are supportive right now of increased US gas production," Wyeno said. "The lack of new liquefaction capacity next year could be bearish for near-term pricing, but the medium- to long-term growth in LNG export capacity will create a demand sink for those additional volumes and could very well rationalize near-term investments in drilling."
Rising production amid the pause in LNG capacity additions sets the stage for a better-supplied domestic market in 2023 and 2024 that will allow Henry Hub prices to move lower, according to Goldman Sachs analysts.
S&P Global forecasts prices at Henry Hub will average $5.47/MMBtu across 2023, peaking near $7/MMBtu across the first quarter before dipping below $5/MMBtu across the second and third quarters of the year amid tight gas balances and economic headwinds in the US and abroad. Goldman Sachs has forecast summer 2023 NYMEX natural gas prices at $4.15/MMBtu and summer 2024 prices at $3.55/MMBtu.
"We expect 2025 to mark the end of this bearish cycle as LNG export capacity additions bring a meaningful step-up in demand," Goldman oil and gas analysts said in a note Dec. 14 to clients. "In our view, this will require gas prices closer to $5/MMBtu, above current forwards, to incentivize increased activity among higher-cost producers in order to service this rapid surge in demand."
