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To aid Europe as it seeks to end its dependence on Russian natural gas, the U.S. is maximizing its shipments of liquefied natural gas (LNG) across the Atlantic, a policy decision that has tightened gas supplies at home and kept prices high.
The amount of gas stored in the U.S. is now 17 percent below its five-year average, according to the U.S. Energy Information Administration (EIA), even though domestic production has now exceeded pre-COVID levels.
U.S. prices for natural gas deliveries in May closed at $5.605 per million BTUs on 30 March, up 50 percent this year and more than double the price 12 months ago.
The last time gas prices spiked so dramatically was in 2008 as the Great Recession was setting in. Since then, a prolonged recession and the boom in fracked gas from shale have kept prices toward their historic lows.
The COVID War curbed economic production and gas demand, sending prices below $2.
Now the post-COVID economic recovery, OPEC’s refusal to boost oil production, and the war in Ukraine have conspired to push oil and gas prices back toward the higher side of their historical levels.
“We are in a new phase for U.S. gas markets,” commodity strategist Ryan Fitzmaurice at Rabobank told The Wall Street Journal.
He expects domestic gas prices to range between $4.50 and $6 for the foreseeable future, compared to the $2-to-$3.50 range that defined the market during the past several years.
Gas will end this year at $4 to $5.50, according to oil and gas executives surveyed last month by the Federal Reserve Bank of Dallas.
In 2025, more LNG terminals will be completed, enabling the U.S. to export even more gas, which will raise prices closer to costlier international levels, Samantha Dart, an analyst at Goldman Sachs, said to the WSJ.
“U.S. gas demand will be primarily driven by U.S. LNG export capacity additions,” she wrote last week in a note to clients.
The U.S. surpassed Australia and Qatar last year to become the world’s largest LNG exporter. In late March, president Joe Biden pledged to more than double the volume of LNG that the U.S. sends to Europe in coming years.
U.S. LNG exports will average 11.3 billion cubic feet per day this year, 16 percent more than a year ago, the EIA predicted.
Soaring gas prices in Europe over the past 12 months have made it cost-effective to import U.S. LNG instead, especially now that future gas from Russia—which makes up about 40 percent of European supplies—is in doubt.
Rising gas prices have contributed to U.S. inflation, pushing up prices for everything from steel to fertilizer and handing Americans some of their highest home heating bills in a decade.
TREND FORECAST: Rising natural gas prices add pressure on domestic producers to expand production. However, there is little slack in the U.S. gas supply: as noted above, U.S. gas flows now exceed 2019 volumes.
The Biden administration probably is already eyeing a plan to invoke the Defense Production Act to order oil and gas producers back into the field later this year to meet domestic needs as well as to fulfill U.S. commitments to Europe to increase LNG deliveries.