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Factors Driving Natural Gas Demand: International and North American Exports

Over the past two years, consumers have enjoyed the benefits of historically low natural gas prices. In 2016, mild winter weather saw a decrease in natural gas consumption in both residential and commercial sectors. The lack of demand contributed to record amounts of natural gas in storage, as well as a steep drop in natural gas spot prices. As a result, the annual average Henry Hub natural gas price was the lowest since 1999. 

However, an increase in domestic and international demand has applied upward price pressure during the latter half of 2016 and into 2017. The Energy Information Administration (EIA) is expecting natural gas spot prices to continue their upward ascent in 2018. The main developments behind the increase in demand can be attributed to an increase in exports to North American and international markets, increase in demand from the power generation sector, and a rise in industrial sector demand. This month, we will cover the effects of increased exports on U.S. natural gas prices.

The United States is expected to become a net exporter of natural gas in 2018. This expectation is driven by growing demand from Mexico, as well as increased exports of liquefied natural gas (LNG) to Asia, Europe, South America, and Central America. Until 2016, the United States didn’t have the capacity to export LNG - there weren’t any facilities in existence before that point in time. With one facility currently in operation (Sabine Pass) and another five in development, the United States is projected to have the third largest liquefaction capacity in the world (behind Australia and Qatar) by 2019. Additionally, U.S. exports to Mexico surged in response to a 2014 change in law allowing foreign investment in oil and natural gas exploration and production. Forecasters are predicting that exports (LNG and Mexican) will account for 21 – 26% of total U.S. natural gas production by 2021.

As natural gas demand continues to increase in the power generation sector, a surge in prices could have a profound impact on electricity prices. LeadingAge New York’s Energy Alliance Program can help you manage your energy prices and navigate the market so that you can find the best energy management solution for your facility. Please contact Danielle McMullen at danielle@energynext.com or 518-580-9244 if you have any questions.