Natural Gas Weekly: January 31, 2024
Infrastructure – The Biden administration is temporarily pausing export licenses for LNG projects while it studies the climate impacts of additional exports. The policy change leaves 5+ Bcf/d of LNG exports in limbo in East Daley Analytics’ long-term natural gas forecast.
The new policy affects review by the Department of Energy (DOE) of applications to export LNG to countries without US free trade agreements (non-FTA). The agency will use the timeout to update its economic and environmental analyses on the impacts of LNG exports. The review will examine contributions to climate change from LNG exports, including methane emissions from natural gas development.
East Daley tracks LNG projects and models LNG capacity and exports in the Macro Gas Supply and Demand Forecast. Our LNG capacity stack includes Golden Pass, Plaquemines Phases 1 & 2, Corpus Christi III, Delfin LNG and Port Arthur Phases 1 & 2. These projects are past the DOE approval phase and expected to start service from 2024 to 2026. Later-stage projects including Rio Grande LNG , Cameron Train 4 and Texas LNG already have non-FTA permits and are not impacted by the new policy. Together, these projects represent 14 Bcf/d of incremental LNG export capacity.
However, DOE’s licensing pause will impact the review of Phase 2 of Global Venture’s CP 2 LNG, Commonwealth LNG, and Cheniere Energy’s Sabine Pass Expansion. Together, these projects account for 6.3 Bcf/d of planned export capacity between 2027 and 2031.
The new policy could depress natural gas demand during if the pause drags on and delays development of these projects. Producers would have fewer new markets later this decade, lowering prices and stunting growth. Next-wave LNG projects have continued to attract new customers, but this commercial progress is likely to slow in the wake of the DOE pause.
In a worst case, DOE could reach an adverse conclusion and permanently pause additional exports. In the Macro Gas Supply and Demand Forecast, 5.3 Bcf/d of gas demand is at risk through 2030 as a result of the licensing pause.
As highlighted in the 2024 Dirty Little Secrets outlook, EDA expects additional supply from Tier 2 basins to meet much of the big jump ahead in export demand. The new DOE policy puts Tier 2 growth at risk through 2030 in our base case. Tier 1 production would also fall from the base case, primarily impacting the Haynesville and Eagle Ford basins. A worst-case scenario removes much of the price premium we expect from the LNG demand ramp in our base case in the Macro Gas Forecast.
We expect the DOE policy to create more volatility ahead in natural gas. Developers, financers, and producers will have less surety of demand, impacting plans to develop new supplies and affecting returns on industry investments.
Flows – Pipeline deliveries to Freeport LNG have fallen by over 0.5 Bcf/d since mid-January after severe weather from Winter Storm Heather damaged equipment at the Texas facility.
Freeport LNG reports that a motor driving the refrigeration compressors at one liquefaction unit will need replacement. The company expects one train to be offline for about a month while the facility undergoes repairs.
The decline in feedgas at Freeport LNG is contributing to oversupply in the market and putting downward pressure on prices at the Houston Ship Channel.
Storage – Traders and analysts expect the Energy Information Administration (EIA) to post a -198 Bcf withdrawal from working gas storage inventories for the week ending January 25. The 5-year average withdrawal for the same week is -185 Bcf, implying the surplus to the 5-year average could contract from 142 Bcf currently to 129 Bcf.
The upcoming EIA report will still be impacted by the production freeze-off hangover caused by Winter Storm Heather, but should be the last affected as production levels have since returned to pre-storm levels. Shippers withdrew 326 Bcf from storage for the week ending January 19 as the storm moved through the Lower 48, according to EIA’s survey, one of the largest weekly withdrawals on record.
Early indications for the week ended February 1 show a withdrawal of around 80 Bcf, which would snap the surplus to the 5--year average back above 240 Bcf. Temperatures across the Lower 48 have been abnormally high the past five days and don’t look particularly cold for the month of February. Weather projections from ICE indicate 638 gas-weighted degree days (GWHDDs) for the month ahead, which would be about 15% (110 GWHDDs) below the 10-year norm.
The March Henry Hub prompt month has struggled to stay above $2.06/MMBtu, in line with East Daley’s Henry Hub spot price forecast in our January ‘24 Macro Supply and Demand Forecast.
Rigs – US rigs decreased by 3 W-o-W to bring the total count to 592. The Permian lost 3 rigs for the January 14 week, while the ArkLaTex and Marcellus+Utica each fell by 1 rig. The Eagle Ford gained 2 rigs.
On the midstream side, EnLink Midstream (ENLC) is down 4 rigs with losses in the Anadarko and Permian basins. Enterprise Products (EPD) gained 2 rigs on its Eagle Ford system. Targa Resources (TRGP) lost 3 rigs on its Permian and Eagle Ford systems.
East Daley’s weekly Midstream Activity Tracker monitors rig activity by basin and gathering and processing (G&P) system to better understand midstream impacts. We allocate rigs and monitor flows through 150+ public and privately owned G&P systems in every North American basin. Reach out for more information on the Midstream Activity Tracker.