US Predicts continued strong LNG demand

Link between oil and LNG prices to remain in place

The United States Energy Information Agency (USEIA) is predicting that increased global demand for liquefied natural gas (LNG) will lead to higher domestic natural gas production between 2023 and 2050.

In its latest Annual Energy Outlook (AEO) the USEIA said while production and export of natural gas will increase, it is expecting a reduction in US demand for the commodity as renewables displace a lot of fossil fuel in the power generation sector.

The annual report predicts, “U.S. natural gas production increases by 15% from 2022 to 2050, and consumption decreases by 6% from its peak in 2022. Across all cases, domestic production outpaces domestic consumption; production increases across all side cases except in the Low Oil and Gas Supply case and the Low Oil Price case.”

It added, “In some cases, exports to satisfy growing international demand for natural gas encourage growth in domestic natural gas production. A significant portion of production growth is due to liquefied natural gas (LNG) export demand, which drives the overall increase in natural gas exports.”

This information is likely to be crucial to T&T which has the potential to continue to earn significant revenue from the export of LNG if it is able to bring to market natural gas to satisfy its installed LNG capacity.

The growth in LNG is driven by the structural change in the natural gas market in Europe, with Western countries moving away from the reliance on Russian gas to securing LNG supplies as well as the change out in Asia from coal in order to meet improved environmental standards.

According to the USEIA, historically, most LNG was traded under long-term, oil-price-linked contracts, because a global LNG price benchmark did not exist and oil could substitute for natural gas in industry and power generation, especially common in Asia.

These factors, the report said, supported highly correlated international natural gas and oil prices. However with growth in more market-based LNG, the strength of the relationship between international natural gas prices and oil prices has eroded, the USEIA argued.

However the USEIA said it expects that in the future oil prices will still affect additional LNG export capacity and overall export levels.

“When the Brent price is high relative to the U.S. Henry Hub price, like in the High Oil Price case, building more LNG export capacity and exporting LNG are more economical than when the Brent price is lower relative to Henry Hub. In the Low Oil Price case, the Brent price is lower, and the Henry Hub price is higher, which curtails LNG exports to below current volumes in the near term and causes LNG capacity to be underutilized near the end of the projection period.” the report read.

It noted that shale gas and associated dissolved natural gas from oil formations are the primary sources of long-term growth of US domestic natural gas production through 2050. Increased production wells in the Permian Basin (Southwest region) is likely to be the primary driver behind associated dissolved natural gas growth with increases in shale gas production mainly coming from the Texas-Louisiana Salt Basin (Gulf Coast Region) and the Appalachian Basin (East Region).

The USEIA insisted that in a high oil price case and High Oil and Gas Supply case, oil production growth leads to increased associated dissolved natural gas and shale production. The opposite occurs in the Low Oil Price case and Low Oil and Gas Supply case, reported the USEIA.

It said international demand for LNG exports results in rising natural gas production, favouring areas that have better access to terminals as dry natural gas production grows in the Southwest, which has easy pipeline transport to the Gulf Coast, where LNG is exported.

The USEIA said production in the Gulf Coast also generally increases across the 2022/2050 period, due to its proximity to LNG export terminals, in all cases, except the Low Oil and Gas Supply case.

In the United States, electrification is displacing combustion fuels in the demand sectors. As electricity generation shifts to using more renewable and battery sources, domestic natural gas consumption for electricity generation is likely to decrease by 2050 relative to 2022, which contrasts with relatively stable growth over the past decade, the USEIA argued.

It expects more natural gas is consumed in the time period in the industrial or electric power sectors than in any other sectors of the US economy.

RECOMMENDED FOR YOU

THE T&T Manufacturers’ Association supports the imposition of a “reasonable and equitable” property tax on residential properties, provided there are tangible results from this new income source, newly re-elected president Roger Roach has said.

AFTER four consecutive years of declining profit, the West Indian Tobacco Company Ltd (WITCO) saw its first increase in profits in five years, attributing this turnaround to rising local sales and the successful entry into the Colombian market.