U.S. oil, gas demand remains strong domestically, internationally

Oil and gas exports, production and prices in the United States have remained high amid rising demand this summer, according to recent reports from the U.S. Energy Information Administration (EIA).

Through the first half of 2021, U.S. exports of liquefied natural gas (LNG) rose 42%, or by 2.8 billion cubic feet per day, to an average of 9.6 billion cubic feet per day, from the same period in 2020. The exports fell to record lows last summer before rising to monthly consecutive highs in November and December.

The exports rose in the first half of this year as international natural gas and LNG spot prices increased in Asia and Europe as a result of cold weather. Rising global LNG demand as COVID-19 restrictions began to ease, and unplanned outages at LNG export facilities in several countries also contributed to the rise in U.S. exports.

The benchmark Henry Hub natural gas and LNG spot prices in the United States have been lower than prices for international natural gas and spot LNG this year. The price difference has resulted in record volumes of U.S. LNG exports. The exports also rose because of the increased export capacity added in 2020. The capacity rose by 2.7 billion cubic feet per day to a peak of 10.8 billion cubic feet per day.

In June, U.S. LNG exports fell slightly as a result of maintenance on several pipelines that deliver natural gas to export facilities. Still, the exports are expected to remain high for the remainder of the year.

While the natural gas prices remain lower domestically compared to internationally, the Henry Hub spot price rose to $3.26 per million British thermal units in June, the highest summer price since 2014. The prices have continued to increase and were an average of $3.67 per million British thermal units through the first two weeks of July.

Tighter U.S. natural gas supply and demand balances have led to price increases. More natural gas exports sent by pipeline and via LNG have reduced the supply available for domestic consumption. Warm weather this summer also has contributed to increased consumption to produce electricity. June was the hottest June on record for the United States, according to the National Oceanic and Atmospheric Administration.

The hot weather is causing increased electricity use and led Little Rock-based regional transmission organization Southwest Power Pool to announce Wednesday (July 28) a period of conservative operations for its entire 14-state balancing authority footprint. The period is expected to run through July 30. The organization doesn’t anticipate the need to request public conservation of energy or make service interruptions, the notice shows.

According to the EIA, tight U.S. natural gas market balances are expected to continue through the rest of 2021. The Henry Hub spot prices will be more than $3 per million British thermal units through March 2022 and be an average of $2.96 per million British thermal units in the second half of 2022.

Meanwhile, U.S. natural gas pipeline exports to Mexico exceeded 7 billion cubic feet per day on multiple days in June, according to data from Wood Mackenzie. The highest exports amount was 7.4 billion cubic feet per day sent on June 17.

Over the past several years, Mexico has relied increasingly on U.S. natural gas after expanding its natural gas pipeline infrastructure. In June, U.S. natural gas pipeline exports to Mexico rose by 25% to an average of 6.8 billion cubic feet per day, from the same month in 2020. Record-high flows are expected to continue through the summer. The rise can be attributed to increased power demand, high temperatures and greater industrial demand.

In 2020, the United States continued to produce more petroleum and natural gas than any other country. It’s a trend that started in 2014. U.S. petroleum and natural gas output in 2020 was 66.9 quadrillion British thermal units (quads), which was more than Russia’s 45.5 quads and Saudi Arabia’s 26.5 quads of petroleum and natural gas production.

The production declined in all three countries following a rapid decrease in demand amid the pandemic.

Even so, U.S. crude oil exports reached a record high in 2020. And as of July 9, the exports have averaged 3 million barrels per day. The most recent data shows the four-week rolling average of U.S. crude oil exports at 3.51 million barrels per day. Over the past three years, the average has not fallen below 2 million barrels per day.

High oil prices have contributed to the steady exports. International benchmark Brent and domestic benchmark West Texas Intermediate crude oil spot prices exceeded $70 per barrel from early June to mid-July.

Since 2015, U.S. crude oil infrastructure has expanded significantly to support the exports. Most of the exports leave the United States from the Gulf Coast region.

So far this year, two petroleum liquids pipeline projects have been completed and 17 others have been announced or are under construction. In 2020, 24 petroleum liquids pipeline projects were completed.