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LNG exports to drive record summer gas demand, industry group says

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LNG exports to drive record summer gas demand, industry group says

Record demand for natural gas this summer will result in flat price pressure as the effects of surging LNG exports and large weekly storage injections are balanced by booming production and other factors such as weather, the Natural Gas Supply Association forecast in a May 30 report.

U.S. oil and gas producers, especially in Appalachia, the Haynesville Shale and the Permian Basin, will supply more than enough natural gas to meet the increased demand with domestic production forecast to be 89.4 Bcf/d, the Natural Gas Supply Association, or NGSA, wrote in its outlook for the summer.

The industry group estimated summer demand of 82.1 Bcf/d, an increase of 2.5 Bcf/d from the same period of 2018 that will be led by a near-doubling of net exports of LNG. With new LNG facilities scaling up and coming online, the NGSA said it expected LNG exports to rise from 3.3 Bcf/d in summer 2018 to 6 Bcf/d this year.

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The burgeoning U.S. LNG industry is growing at a rapid clip. Since summer 2018, export pioneer Cheniere Energy Inc. has placed a fifth production unit online at its flagship Sabine Pass terminal in Louisiana, along with the first train of its new terminal in Corpus Christi, Texas, where a second unit is being commissioned ahead of a targeted start date in the coming months.

Earlier in May, the Sempra Energy-led Cameron LNG terminal in Louisiana started production of LNG, making the facility the fourth large-scale LNG export terminal in the mainland United States to become operational. Sempra expects to soon ship the first commissioning cargoes from the terminal. Work also continues on another two LNG facilities — Freeport LNG Development LP's terminal in Texas and Kinder Morgan Inc.'s Elba Island in Georgia — that have targeted start dates this summer.

The outlook attributed the addition of new LNG trains as the main driver of LNG exports growth, rather than a surge in global demand.

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The U.S. LNG export capacity was not fully utilized in summer 2018 and seasonal demand swings for the commodity will be normal, the NGSA said.

"As global demand for LNG demonstrates a seasonal shape with a winter peak and a smaller summer peak, shoulder season demand often trends below available supply, leading to under-utilization of less competitive suppliers," the outlook said.

In recent months, depressed prices in Asian markets have led to a surge in the flow of uncommitted cargoes to Europe. Some industry observers have questioned whether sustained low prices could cause LNG producers to curtail or shut-in production, and the outlook said subdued global demand could force some facilities to operate below full capacity.

Another pressure point the NGSA identified for the natural gas market was "very large weekly storage injections" with about 85 Bcf required on average for adequate storage levels, which is more than 40% higher than summer 2018. In the South Central U.S., where many of the LNG projects are concentrated, storage facilities "play an essential role in buffering volatilities created by LNG operations" by absorbing surplus supply or responding to acute demand spikes, the outlook said.

The outlook also said demand will be supported by increased pipeline exports to Mexico and some growth in the industrial market.

But the NGSA expected a slight decrease in demand from the power and residential and commercial sectors because of a cooler and wetter summer than last year, helping to blunt the upward pressure on prices caused by the demand growth. The National Oceanic and Atmospheric Administration predicted summer in the mainland U.S. will be 14% cooler than last summer, while still 3% warmer than the 30-year-average.

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The NGSA forecast, prepared by consulting firm Energy Ventures Analysis Inc., largely jibed in its assessment of LNG exports and storage levels with the summer reliability and energy market assessment by Federal Energy Regulatory Commission staff, which was presented on May 16.

FERC staff expected gas futures prices this summer to be mixed compared to summer 2018, going higher in some regions, especially the West, Southeast and New England, and lower in the other regions. FERC's assessment also said a high rate of gas injections should return storage inventory to average levels and will have to be supported by continued production growth in the Permian Basin and Marcellus Shale.