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EIA: Freeport LNG outage shifts US supply and demand balance

Published by , Assistant Editor
LNG Industry,

A fire at Freeport LNG’s natural gas liquefaction plant led to the full shutdown of the facility on 8 June. The shutdown reduced US export capacity by an estimated 2.0 billion ft3/d, and as a result, the US benchmark Henry Hub natural gas spot price fell by US$1.27 per million Btu to US$8.16/million Btu on 9 June, the US Energy Information Administration (EIA) states. The Henry Hub price continued to decline through the end of June, ending the month at US$6.54/million Btu.

Prices fell largely because the outage at Freeport LNG decreased US natural gas exports (a factor in US natural gas demand), putting downward pressure on natural gas prices. In EIA’s July Short-Term Energy Outlook (STEO), it estimates that US LNG exports averaged 10.1 billion ft3/d in June, a 1.5 billion ft3/d decline from May, as a result of the outage. EIA expects US LNG exports to remain below average, at 10.5 billion ft3/d in 2H22, which is 1.8 billion ft3/d lower than in its June STEO forecast.

EIA expects that the Henry Hub natural gas spot price will continue to decline from its June average of US$7.70/million Btu to an average of US$5.97/million Btu in the 2H22. The organisation expects a price decline mainly because fewer US LNG exports will likely contribute to a lower overall US natural gas demand outlook.

Amid lower natural gas prices, EIA forecasts that natural gas consumption in the industrial sector and electric power sector is to rise, offsetting some of the drop in total demand. It expects total demand (consumption plus exports) to be down by 0.7 billion ft3/d in 2H22.

By the spring of 2023, EIA expects US natural gas production will increase and inventories will build back to their five-year (2017 - 2022) average levels, putting additional downward pressure on prices. The July STEO forecasts the 2023 Henry Hub spot price will average US$4.76/million Btu.

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