Natural gas production in the United States reached record levels in 2018. Natural gas production grew consistently throughout the year, led by production increases in the Appalachian Basin, the Permian Basin, and the Haynesville shale formation. Production growth was driven by different factors depending on the region, including increased takeaway capacity, more efficient drilling, higher crude oil production, and elevated natural gas prices.
Natural gas consumption in the United States reached record levels in 2018. Natural gas consumption growth was driven primarily by increases in the electric power sector, with the generation mixshowing natural gas and renewables displacing coal-fired generation during the year. Natural gas consumption also increased in the industrial, residential, and commercial sectors in 2018, although residential and commercial sector consumption increases were the result of unusually cold weather in the first quarter of 2018, in particular in early January 2018.
Natural gas storage stocks reached extremely low levels in 2018. Natural gas storage inventories ended the heating season on March 31 at their lowest level since 2014, and they did not refill during the summer injection season as quickly as in previous years. Low volumes of natural gas injected into storage were the result of growing levels of natural gas exports and high consumption. Natural gas storage inventories entered the winter season on November 1 at significantly lower levels than in previous years, which contributed to unusual price volatility and price increases in later months of the year.
Natural gas exports reached new highs in 2018. Natural gas exports reached record levels in 2018, driven primarily by exports of liquefied natural gas (LNG), and secondarily by pipeline exports to Mexico. LNG export capacity is expected to continue growing in 2019 as new LNG export facilities enter service.
Prices/Supply/Demand:
Prices rise across most of the Lower 48 states. This report week (Wednesday, January 2 to Wednesday, January 9), Henry Hub spot prices rose 12¢ from $2.79/MMBtu last Wednesday to their weekly high of $2.91/MMBtu yesterday. At the Chicago Citygate, prices increased 6¢ from $2.64/MMBtu last Wednesday to $2.70/MMBtu yesterday. Temperatures this report week were warmer than normal across the Lower 48 states, and much warmer than normal across the Midwest, especially in the Great Plains. However, forecasts for snow and the return of winter weather on the East Coast put upward pressure on prices at the end of this report week.
Northeast prices rise. Prices in the Northeast nearly doubled during the report week with the anticipation of cold weather. At the Algonquin Citygate, which serves Boston-area consumers and is pipeline constrained, prices went up $3.63 from $2.97/MMBtu last Wednesday to their weekly high of $6.60/MMBtu yesterday. At the Transcontinental Pipeline Zone 6 trading point for New York City, prices increased $2.53 from $2.72/MMBtu last Wednesday to their weekly high of $5.25/MMBtu yesterday.
Tennessee Zone 4 Marcellus spot prices increased 19¢ from $2.52/MMBtu last Wednesday to $2.71/MMBtu yesterday. Prices at Dominion South in southwest Pennsylvania rose 14¢ from $2.51/MMBtu last Wednesday to $2.65/MMBtu yesterday.
Prices fall in California. Prices at PG&E Citygate in Northern California fell 40¢, down from $3.82/MMBtu last Wednesday to $3.42/MMBtu yesterday. Prices at SoCal Citygate decreased $2.99 from $7.65/MMBtu last Wednesday to $4.66/MMBtu yesterday.
Discount at Permian Basin trading hub persists. Prices at the Waha Hub in West Texas, which is located near Permian Basin production activities, averaged $2.43/MMBtu last Wednesday, 36¢/MMBtu lower than Henry Hub prices. Thursday’s Waha/Henry Hub spread of 30¢/MMBtu was the narrowest discount since November 2018. However, prices declined during the week, and yesterday, prices at the Waha Hub averaged $2.06/MMBtu, 85¢/MMBtu lower than Henry Hub prices.
Supply rises. According to data from PointLogic Energy, the average total supply of natural gas rose by 1% compared with the previous report week. Dry natural gas production remained constant week over week. Average net imports from Canada increased by 18% from last week as U.S. imports from Canada increased while U.S. exports to Canada declined. According to Genscape data, flows at Waddington, New York, on the 1.25 Bcf/d capacity Iroquois pipeline, which brings natural gas from Canada down to the New York City area, rose more than 30% week to week. Flows at St. Clair, Michigan, on the 1.35 Bcf/d capacity Vector pipeline, which delivers natural gas into the Dawn hub in Ontario, Canada, declined by more than 20% from the previous report week, driving declines in U.S. exports into Canada.
Demand falls amid warm temperatures. Total U.S. consumption of natural gas fell by 3% compared with the previous report week, according to data from PointLogic Energy. Natural gas consumed for power generation declined by 1% week over week. Industrial sector consumption decreased by 2% week over week. In the residential and commercial sectors, consumption declined by 4%. Natural gas exports to Mexico increased 19%. U.S. exports to Mexico, which were low as a result of depressed holiday demand and higher production within Mexico, rebounded this week and reached a new daily high of 5.2 Bcf/d according to S&P Global Platts.
U.S. LNG exports are flat week over week. 10 LNG vessels (7 from the Sabine Pass liquefaction terminal, 2 from Cove Point, and 1 from Corpus Christi) with a combined LNG-carrying capacity of 36.2 Bcf departed the United States between January 3 and January 9. One vessel was loading at Sabine Pass on Wednesday, according to shipping data compiled by Bloomberg.
Cheniere Energy, the developer of the Sabine Pass and Corpus Christi liquefaction facilities, received a letter order last week from the Federal Energy Regulatory Commission granting it approval to introduce natural gas and commission the Train 2 fuel gas system at Corpus Christi. The commissioning of Train 2 is progressing several months ahead of the previously announced schedule. Train 1 at Corpus Christi facility has been placed in service and shipped its first LNG cargo on December 11, 2018. The third train at Corpus Christi is currently under construction, with an expected in-service date of May 2021.
U.S. LNG exports reach new record high. U.S. LNG exports in December 2018 set another record, with 36 exported cargoes, after Train 5 at Sabine Pass and Train 1 at Corpus Christi began producing LNG and shipped their first cargoes. Currently, seven liquefaction trains are operating in the United States across three facilities (five trains at Sabine Pass, one at Cove Point, and one at Corpus Christi). Three more liquefaction projects (Cameron LNG, Elba Island, and Freeport) are expected to enter service in 2019.
