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U.S. LNG Production Declines Despite Robust Demand

  • The flow of natural gas to liquefaction plants along the Gulf Coast has declined in October, largely due to maintenance and outages.
  • U.S. LNG exports could start to rise this week as some traders expect Cove Point to return to service soon.
  • Demand for LNG is set to remain robust this winter, and U.S. exports are likely to soar again when Freeport LNG returns to service.

Natural gas flows to liquefaction plants along the Gulf Coast have been on the decline since the start of October, reflecting a decline in LNG production prompted by maintenance and outages.

The Cove Point LNG facility is undergoing regular maintenance and Freeport LNG remains shut after an explosion in June.

This will likely change as Cove Point is expected to return to regular operation soon and Freeport is preparing to resume normal operation as well, although it first needs to secure full approval for the restart.

The average daily volume of gas flows from U.S. fields to the liquefaction trains in the South stood at 11.1 billion cubic feet, Refnitiv data cited by Investing.com showed.

That’s down from 11.5 billion cubic feet for September and further down from the record 12.9 billion cubic feet daily booked in March as demand for U.S. LNG from Europe surged.

This demand is still robust, keeping the price difference big enough to motivate consistently record-high exports. Yet LNG producers are nearing their capacity limits and demand for their product is unlikely to subside any time soon.

Indeed, this week media reported that LNG carriers are clogging Spain’s import terminals because there are more ships than offload points in the EU member with the largest LNG import capacity.

As demand for U.S. LNG from international markets rises, however, so do domestic gas prices, sparking concern about the affordability of energy this heating season in those parts of the U.S. that need heating.

Earlier this week, the Federal Energy Regulatory Commission said it expected natural gas prices this winter to be higher than the average for recent years, all because of higher exports.

"Forecasts anticipate that continued growth in net exports, including from liquefied natural gas (LNG) export facilities, will place additional pressure on natural gas prices this winter," the FERC said.

This will be true even if domestic gas production continues growing and even if the rate of its growth exceeds the growth rate of demand, FERC also said, as quoted by Reuters.

FERC has forecast the average Henry Hub price for this year at $6.82 per mmBtu, which would be 30 percent higher than the average for last year.

By Irina Slav for Oilprice.com

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