Industry group highlights rising gas prices in winter to impose limits on US LNG exports

Strong points

Seek DOE action, suspend pending permissions

LNG group warns against selection of winners by DOE

Taking advantage of the rise in natural gas prices in the United States expected this winter, a group of industrialists is pleading with the Department of Energy to limit LNG exports and suspend certain pending export project authorizations.

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“We urge you to take immediate action under the natural gas law to avert a supply crisis and price spikes for consumers this winter by forcing LNG exporters to cut export rates … to allow US inventories to reach average storage levels over five years, “wrote industrial energy consumers in America in a September 17 letter to Energy Secretary Jennifer Granholm.

The group also asked the DOE to place all “existing, pending and pending permits and approvals” at export facilities in Lower-48 states, and to consider whether the facilities are in the best interests of the country. public.

The IECA has long opposed the scale of the expansion of LNG exports to the United States, pointing to the potential for higher prices of natural gas in the domestic market for consumers such as large industrial customers who are compete in international markets.

The group pointed to Henry Hub’s winter natural gas prices at $ 5.50 / MMBtu, more than double levels from a year ago, and a report from the Energy Information Administration that inventories of active gas amounted to 3.006 Tcf or 7% less than the five-year average for the week ended. September 17. The Henry Hub Winter Band was trading at $ 4.99 / MMBtu on September 20, compared to $ 5.52 / MMBtu on September 15.

Global market trends

Global gas and LNG prices have followed a considerable upward trajectory over the past six months, with the JKM spot price recently surpassing $ 26 / MMBtu, bringing the Dutch TTF gas price to a record high of 25 , $ 74 / MMBtu on September 20.

Over the past year, the persistent underperformance of several global LNG producers has been exacerbated by extreme weather events, such as the one in 100 year drought in South America which has boosted global and private demand. European gas gas markets for filling summer storage. , according to S&P Global Platts Analytics.

With global gas prices now trading well above the change price for coal-fired generation in electricity markets, few fundamental levers remain that could temper further price strengthening, especially in the event of a downturn. winter colder than normal, Platts Analytics said.

In the United States, with most gas-to-coal transitions already exhausted, Henry Hub is essentially without price pegs this winter, according to Platts Analytics. Due to the steadily rising global LNG prices, fuel oil has become the next source of fuel that can be used to reduce gas demand. However, with fuel oil prices of around $ 11 / MMBtu to the equivalent of $ 12 / MMBtu, the Henry Hub’s prices would have to at least exceed $ 10 / MMBtu to trigger a significant change, according to Platts Analytics.

In its letter to Granholm, the IECA argued that if prices in the United States were to increase to $ 10 / MMBtu, manufacturing demand would be destroyed. “Many manufacturers can no longer compete in the market at these prices. In 2008, we saw thousands of manufacturing facilities shut down because they were no longer profitable,” the letter explained.

Charles Riedl of the Center for Liquified Natural Gas questioned the suggestion that a 4 billion cubic foot increase in US LNG exports over the past year has a disproportionate impact on the price of natural gas, pointing to rising prices. commodity prices and inflationary pressure across the board, hot weather conditions throughout August and the impacts on production associated with Hurricane Ida.

Study after study has come to the conclusion that national natural gas reserves and production are capable of absorbing large-scale LNG exports, Riedl said, while also noting the EIA’s expectations according to which US gas prices would decline in 2022.

The EIA estimated that Henry Hub prices would average $ 3.47 in 2022 amid rising production and slower growth in LNG exports.

Riedl argued that the IECA was asking the government to “pick winners and losers” in a free market. LNG exporters, like manufacturers, have invested billions in their facilities knowing they would need natural gas as a feedstock for their product on a global scale, he said.

Fred Hutchison of LNG Allies also pointed out that the previous two administrations had taken care to convey to foreign buyers that once the export authorization was granted, the United States did not intend to revoke those authorizations. , with tens of billions of dollars in business relationships at stake.

Among other things, the IECA asked the DOE to reconsider its 2020 decision to extend approved export agreements by 30 years until 2050.

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