The United States Energy Information Agency (USEIA) is reporting that in 2018 natural gas prices in the US averaged 15 cents higher per million British Thermal Units (mmbtu) in 2018 than it did in 2017.
This is encouraging news for T&T in two ways. Firstly, a lot of the country’s liquefied natural gas (LNG) exports are tied to the US prices at the Henry Hub and therefore higher US prices should result in higher revenues for the government and secondly the petrochemical sector, which has been made to pay higher natural gas prices by the NGC and may be able to better compete with US companies which would have also faced higher prices in 2018.
The US EIA noted that the increase in the average prices came about even though there was record US production of the commodity and was met by growing demand in the United States and increased exports of both piped natural gas and LNG.
The report, which was released just over a week ago, states:
“In 2018, the average annual Henry Hub natural gas spot price increased to $3.16 per million British thermal units (mmbtu), up 15 cents from the 2017 average. Prices increased gradually through much of the year, with significant price increases during October and November, before declining at the end of December.
“Growing US production and low temperatures during the winter months supported increased natural gas consumption through 2018. In addition, continued increases of US natural gas exports by pipeline to Mexico and additional liquefied natural gas export capacity that came online during the year resulted in the United States exporting more natural gas than it imported for the second year in a row.”
The report noted that in 2018, the average annual Henry Hub natural gas spot price increased to $3.16 per mmbtu, up 15 cents from the 2017 average.
It said prices increased gradually through much of the year, with significant price increases during October and November, before declining at the end of December.
The report noted that growing US production and low temperatures during the winter months supported increased natural gas consumption through 2018.
Another important development was the improved infrastructure in the Appalachia region of the United States which has reduced the discounted natural gas prices being paid due to challenges in getting the gas to market.
“Since 2014, natural gas spot prices in Appalachia have traded at a discount to Henry Hub because pipeline capacity to flow natural gas to other regions has been limited.
The spread in natural gas spot prices between the Henry Hub in Louisiana and the Appalachian region continued to narrow in 2018. Pipeline capacity build-out in the Appalachian region continued during 2018 to bring natural gas to demand centres outside the region, decreasing the price difference between the two regions.”
The Appalachian region is the area in the US that follows the spine of the Appalachian Mountains from southern New York to northern Mississippi. It includes all of West Virginia and parts of 12 other states.
The reduction in the arbitrage between the Appalachian Region and those paying prices at the Henry Hub is likely to increase the overall average prices of natural gas in the US and again help with the competitiveness of the local petrochemical sector, relative to their US counterpart.
The issue will be whether that will be a long-term situation.
The US has major pipeline projects that should increase its capacity to bring both oil and natural gas from the Permian basin to the coast where it is needed.
This will increase capacity and will likely be met by higher production. Will demand increase concomitantly? That is a question that has to be answered.
