LNG Demand and Storage Going into Winter 2021-2022

By Sean Devine, Director of Natural Gas Sales

There have been a few main driving factors that have led to the increasingly higher natural gas prices and lower storage levels through 2021. As the country has seen continuous heat waves across a majority of the lower 48, another driver has made quite an impact on the ascending pricing of natural gas and that driver is Liquified Natural Gas (LNG). LNG feedgas deliveries to date have hovered around 10 Bcf/d which is roughly twice as much compared to 2020. The JKM market (Japan and Korea) is seeing winter pricing in the high teens/dth. This means the demand for LNG for the upcoming winter will be a significant market dictator. We are seeing this supply and demand relationship driving the cost of natural gas higher and higher. With more facilities coming online over the next 12 to 18 months, as well as increased rail capacity, we will be seeing LNG playing an even bigger role in natural gas pricing.

U.S. Energy Information Administration, Annual Energy Outlook 2021 (AEO2021)

Storage has also made quite an impact and the two are related. With heatwaves increasing power generation demand, the lower-than-expected storage injections are beginning to worry some as we head into the heating season. Storage plays a key role during periods of volatility and when the temperatures drop below freezing, and the transportation lines are maxed, the release of needed gas into the distribution system keeps the boilers running and the lights on. The two drivers go hand in hand as mentioned in a previous article, What is the Relationship Between Commodity Prices and Inflation? (Article link: https://freedomenergy.wpengine.com/what-is-the-relationship-between-commodity-prices-and-inflation/ )

LNG tankers also keep the boilers running and the lights on in the winter here in the northern states. With the JKM market inflated, demand continuously increasing for LNG, and low storage levels, we are expecting less of the precious LNG tankers to deliver to the New England marketplace. This combination of LNG demand, increased export capacity, and power generation demand have played a main role in pushing natural gas costs up on the mercantile exchange. We will be keeping a very close eye on all of these factors.