Key Drivers

1. Explosion at the Freeport LNG exporting facility in Texas
2. The news that the repairs on the Freeport facility will take 90 days instead of 3 weeks
3. Higher than expected weekly storage injections since the LNG facility was shut down
4. 2 bcf/day of natural gas staying home in the US instead of being shipped to Europe and Asia
5. The severe storage deficit in the U.S. is no longer severe due to higher storage injections

 Commentary
What if we weren’t shipping around 13 bcf/day of natural gas out of the country?  That question has been answered.  On June 7^th natural gas NYMEX for July delivery settled for the day at $9.293/MMBTU.  On June 8^th everything changed when the Freeport LNG terminal in Texas experienced an explosion shutting down the terminal and it’s 2 bcf/day of LNG being shipped primarily to Europe and Asia.  The market quickly saw prices drop $.60/MMBTU.  It was expected to take 3 weeks to repair.   The 3 week repair time didn’t erase the domestic supply and demand issue, especially with the extreme hot temperatures that would consume much of the extra natural gas available.  The first big price drop happened on June 14^th after the announcement that the Freeport facility would take 90 days to repair instead of 21 days.  On June 14^th  natural gas NYMEX quickly dropped $1.42/MMBTU settling for the day at $7.189/MMBTU.  Although wholesale prices tried to rebound higher than expected, weekly storage injections kept it from happening.  Last week prices plunged again with August natural gas NYMEX settling at $5.424/MMBTU.  In a matter of 3 weeks natural gas NYMEX unexpectedly dropped nearly $4.00/MMBTU.  Is shipping 13 bcf/day effecting domestic natural gas prices?  Absolutely.  There’s one other important note to make.  While electric prices in the U.S. have risen in nearly lock step with the rise in natural gas prices this past year, electric prices have been very reluctant to drop to the extent that natural gas prices have dropped the past three weeks.  The primary reason electric prices haven’t fallen is the idea that while the short-term fundamentals for natural gas has drastically changed, the long-term fundamentals have not.

In the long-term not only will the Freeport LNG facility be back online, but we may see exports actually grow to near 14 bcf/day with the current LNG facilities already in place in the U.S.  New facilities are being built to bring on at least 10 BCf/day of LNG exporting capability by 2024.  More export facilities are quickly being planned with the surge of European demand as those countries reduce Russian natural gas imports.  While U.S. producers are ramping up drilling and fracking, they have been very slow to increase spending money on drilling due to higher profits required by investors and shareholders.  Questions remain concerning how quickly new production will hit the U.S. markets and if this new production can out pace growing natural gas demand both domestically and globally.  Supply chain issues, much higher drilling and fracking costs and employee issues are slowing down the process.  U.S. natural gas production is still substantially lagging pre-COVID 19 levels.  Plus, the U.S. will still enter next winter with a storage deficit.  It won’t likely be near as severe as expected just 3 weeks ago, but it won’t likely be any better than the deficit we had entering last winter.  If you remember, prices spiked pretty dramatically last fall.