Seizing on higher US natural gas prices expected this winter, a group of industrial manufacturers is making a pitch for the Department of Energy to limit LNG exports and put a hold on some pending export project authorizations.
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"We urge you to take immediate action under the Natural Gas Act to prevent a supply crisis and price spikes for consumers this winter by requiring LNG exporters to reduce export rates ... to allow US inventories to reach the five-year average storage levels," the Industrial Energy Consumers of America wrote in a Sept. 17 letter to Energy Secretary Jennifer Granholm.
The group also asked DOE to place all "existing, pending, and prefiling permits and approvals" in export facilities in the Lower-48 states, and review whether the facilities are in the public interest.
IECA has long opposed the scope of LNG export expansions in the US, pointing to a potential for higher domestic natural gas prices for consumers such as large industrial customers that compete in international markets.
The group pointed to Henry Hub winter strip natural gas prices at $5.50/MMBtu, more than double year-ago levels, and an Energy Information Administration report that working gas stocks totaled 3.006 Tcf or 7% below the five-year average for the week ended Sept. 17. The Henry Hub winter strip traded at $4.99/MMBtu Sept. 20, down from $5.52/MMBtu Sept. 15.
Global market trends
Global gas and LNG prices have been on a tremendous upward trajectory over the past six months, with the JKM spot price recently breaking over $26/MMBtu, drawing the Dutch TTF gas price to a record-high $25.74/MMBtu Sept. 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 across South America that bolstered global demand and starved European gas markets of gas for summer storage refilling, according to S&P Global Platts Analytics.
With global gas prices now trading well above the switching price for coal-fired generation in the power markets, there remain few fundamental levers that could temper further price strengthening, particularly in the event of a colder-than-normal winter, Platts Analytics said.
In the US, as most of the gas-to-coal switching has already been exhausted, Henry Hub is essentially without a price anchor this winter, according to Platts Analytics. Due to a steady march up in global LNG prices, fuel oil has emerged as the next likely generating fuel source that could potentially be used for switching off gas demand. However, with fuel oil prices around $11/MMBtu-$12/MMBtu equivalent, Henry Hub prices would need to at least surpass $10/MMBtu to spark any meaningful switching, according to Platts Analytics.
In its letter to Granholm, IECA argued that if US prices were to rise to $10/MMBtu, manufacturing demand destruction would occur. "Many manufacturers can no longer compete in the market at those prices. In 2008, we saw thousands of manufacturing facilities shut down because they were no longer profitable," the letter argued.
Charles Riedl of the Center for Liquified Natural Gas questioned the suggestion that a 4 Bcf increase in US LNG exports over the past year is having an outsized impact on the price of natural gas, pointing to rising commodity prices and inflationary pressure across the board, hot weather in August, and production impacts associated with Hurricane Ida.
Study after study has reached the conclusion that reserves and production of natural gas domestically are capable of absorbing large-scale LNG exports, Riedl asserted, while also noting EIA's expectations that US gas prices would subside in 2022.
EIA has estimated that Henry Hub prices would average $3.47 in 2022 amid rising production and slowing growth in LNG exports.
Riedl argued IECA was asking the government to "pick winners and losers" in a free market. LNG exporters, like manufacturers, have invested billions in their facilities with the understanding that they would need natural gas as a feedstock for their product globally, he said.
Fred Hutchison of LNG Allies also emphasized that both prior administrations took pains to make clear to foreign buyers that once export authority had been granted, the US had no intention to rescind those authorizations, with tens of billions of dollars of commercial relations at stake.
Among other things, IECA asked DOE to revisit its 2020 decision to extend approved export agreements by 30 years to 2050.