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Interview Synopsis

North America natural gas – pricing dynamics & Q2 2022 outlook

  • Credit
  • Energy
  • North America

US natural gas prices rose to a 13-year high in May, as the global commodity crisis intensifies.* According to a senior executive at Enverus, a sustained harsh winter this year could push US gas prices further into “new territory” – topping double figures.

Severe winter could push US gas prices into double figures

In an Interview with Third Bridge Forum, the specialist said the deterioration of storage capabilities, “sluggish” production levels and the announcement of new liquified natural gas (LNG) capacity were driving gas prices higher. The onset of the Russia-Ukraine conflict has subsequently “accelerated” these increases, according to the specialist. 

We were told that high inventories are “insurance” against gas price spikes. However, the specialist warned that if current levels remain low, a cold winter next year could see prices hit 30/metric million British thermal units (MMbtu). 

LNG export demand has also increased in the US, according to the specialist. Demand is currently at 12-13 billion cubic feet per day (Bcf/d) and represents 13% of US gas production. The specialist expects LNG export demand to grow incrementally until the “next wave” of capacity comes online in 2024 from projects such as ExxonMobil’s Golden Pass. 

The specialist told us one bottleneck hitting gas production is a lack of sand. They said that although there is enough to satisfy completion demands, the number of sand mines have reduced since 2019. Longer driving routes and labour constraints were also described as a “hold up”, and completion crews are being “handcuffed” waiting for sand. 

Despite these bottlenecks, the specialist said production levels are beginning to “kick up” – a sign that things are “starting to normalise”. Well frack counts have increased in Q1 this year, and rig counts are “higher” than pre-pandemic levels, we were told. As a result, the specialist believes supply will grow enough in 2023 to soften the market after next winter. 

Over the coming months, the specialist said the weather and number of wells would determine the price of US gas. If conditions are good, and monthly growth rates hit 500-750 Mcf/d, the specialist expects prices to normalise. Anything lower would be a “red flag” to long-term gas market prospects, the specialist warned.  

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* Reuters

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