Although US South Central gas storage inventories have returned to near the five-year average, a colder-than-normal winter could lead to record-low stocks by the end of the season as demand from LNG and exports to Mexico could reach all-time highs in the months and years ahead.
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Total inventories in the South Central region climbed from a massive deficit during the summer to a 3% surplus to the five-year average by late-December, according to data from the US Energy Information Administration, alleviating inventory concerns noted during the summer's injection season. However, elevated export demand may result in strong withdrawals from storage if late winter proves to be cold.
LNG export demand has averaged 11.4 Bcf/d since the start of the winter heating season in early-November, up 1 Bcf/d from levels observed during the same time last year amid increased global competition for the commodity, according to S&P Global Platts Analytics.
It has continued to increase as the market delves deeper into winter. Feedgas deliveries to LNG facilities reached all-time highs in mid-December. They reached 12.6 Bcf/d on Dec. 18, 200 MMcf/d greater than the previous all-time high. They then climbed to nearly 13.1 Bcf/d on Dec. 19. Deliveries dipped slightly to average 12.26 Bcf/d for the final week of 2021.
The Cameron and Sabine Pass LNG facilities drove the gains. At Cameron, daily deliveries reached a new high of 2.3 Bcf/d, 15 MMcf/d above the previous all-time high. At Sabine Pass, deliveries climbed above 5 Bcf/d for the first time ever Dec. 19, due to the continued ramp of Train 6 and efficiency improvements to increase capacity at Cheniere facilities, according to Platts Analytics.
Not included in the above deliveries are volumes delivered to Calcasieu Pass, which was receiving 24 MMcf/d from TransCameron Pipeline for commissioning activities. Trains 1 and 2 are commissioning now with full service for these trains expected during the first quarter of 2022, which will likely lead to new records being set as global demand propels exports.
By 2024, US LNG peak export capacity will increase to an estimated 16.3 Bcf/d, according to the EIA. Record-breaking global LNG prices and favorable netbacks have continued to incentivize new investments. Prices in destination markets in Asia reached new highs in October and in Europe in December.
S&P Global Platts assessed the Dutch Title Transfer Facility natural gas hub front-month contract at a new record high near $60/MMBtu on Dec. 21, amid below-average temperatures and strong demand in Europe. The forward curve suggests prices will moderate in 2022 and 2023, though they are still expected to remain at historical levels for an extended period. Analysts generally expect end-user prices to remain well-supported during the winter and throughout 2022 as European storage levels rebuild.
In addition to rising LNG exports, exports to Mexico are also climbing with the majority of the increase in the Texas to Mexico corridor versus the US Southwest to Mexico corridor, driven by increased power demand in Mexico. December exports to Mexico averaged 5.7 Bcf/d, an increase of 200 MMcf/d from the previous year during the same time, according to Platts Analytics. The increase was largely driven by demand pacing 100 MMcf/d stronger compared to December 2020, supporting pipeline imports.
Additionally, pricing in Texas has been relatively weaker than pricing in the Southwest. Houston Ship Channel spot, as a representative price for Texas pricing, averaged $3.67/MMBtu in December while El Paso South Mainline spot, as a representative price for the Southwest, averaged $4.97/MMBtu.
The Houston Ship Channel January through March 2022 contracts fell to $3.86/MMBtu by late-December, down $1.68 since the start of winter amid the closing storage gap and the likelihood of above-average temperatures in the Texas and Southeast region.
However, the lack of strong winter demand is likely to be offset by exports to Mexico, set to average about 5.82 Bcf/d, and LNG exports projected to average 13 Bcf/d in the first three months of 2022. This could likely lead to strong withdrawals should a cold winter come to fruition leading to record low stocks by end of winter.