Taps Coogan – August 26th, 2022

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Back in June of this year, an explosion at a Freeport LNG facility took roughly 20% of US liquid natural gas (LNG) export capacity offline. The facility isn’t expected to return to operations until November.

Natural gas prices in the US dropped roughly 45% in the months following the explosion as that gas originally destined to be exported to Europe or elsewhere wound up stuck in North America. European benchmark prices have risen nearly 400% since the explosion for a constellation of reasons.

However, a curious thing has happened in the last couple months. Despite a relatively large amount of gas supply remaining in the domestic market due to the explosion, prices in the US have rallied back to new 14-year highs and, as the following chart from the EIA via The Daily Shot highlights, US natural gas inventories are increasingly lagging the 5-year average.

Despite the extra domestic supply, storage is 12% below the historical average for this time of year and prices have rocketed back to new highs.

In other words, this remains a very tight natural gas market and it will presumably get tighter domestically when Freeport comes back online this Fall/Winter.

Regardless of the dynamics of the war in Ukraine, the US is not producing enough gas to keep prices reasonable even with lower exports.

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