July 25, 2022 [Rigzone] – A fire at Freeport LNG’s natural gas liquefaction plant led to the full shutdown of the facility on June 8 reducing the export of the chilled fuel from the U.S.
According to information provided by the U.S. Energy Information Administration (EIA), the shutdown reduced U.S. export capacity by an estimated 2.0 billion cubic feet per day (Bcf/d), and as a result, the U.S. benchmark Henry Hub natural gas spot price fell by $1.27 per million British thermal units (MMBtu) to $8.16/MMBtu on June 9.
The EIA added that the Henry Hub price continued to decline through the end of June, ending the month at $6.54/MMBtu.
Prices fell largely because the outage at Freeport LNG decreased U.S. natural gas exports (a factor in U.S. natural gas demand), putting downward pressure on natural gas prices.
The Administration estimated in its July Short-Term Energy Outlook (STEO) that U.S. liquefied natural gas exports averaged 10.1 Bcf/d in June, a 1.5 Bcf/d decline from May, because of the outage. The EIA expects U.S. LNG exports to remain below average, at 10.5 Bcf/d in the second half of 2022, which is 1.8 Bcf/d lower than the June STEO forecast.
“We expect the Henry Hub natural gas spot price will continue to decline from its June average of $7.70/MMBtu to an average of $5.97/MMBtu in the second half of 2022. We expect a price decline mainly because fewer U.S. LNG exports will likely contribute to a lower overall U.S. natural gas demand outlook,” the EIA explained.
Amid lower natural gas prices, the EIA forecasts natural gas consumption in the industrial sector and electric power sector to rise, offsetting some of the drops in total demand. The Administration expects total demand – consumption plus exports – to be down by 0.7 Bcf/d in 2H22.
“By the spring of 2023, we expect U.S. natural gas production will increase and inventories will build back to their five-year (2017–2022) average levels, putting additional downward pressure on prices. The July STEO forecasts the 2023 Henry Hub spot price will average $4.76/MMBtu,” EIA concluded.
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