South Central gas storage build at risk as Gulf Coast LNG export demand grows

As gas storage levels in the US South Central region hit seasonal lows, this summer's inventory build could be a challenging one for utilities and traders who will face stiffer competition for supply in the Gulf Coast market where LNG exports are forecast to hit new record highs this year.

In mid-March, South Central storage levels bottomed out at an estimated 559 Bcf, hitting their lowest since 2019 as the region's inventory deficit versus the five-year average widened to over 150 Bcf. Following a paltry first injection of the season in late March, storage levels in the South Central region are now estimated at 581 Bcf as of the week ended March 25, the latest storage report from the US Energy Information Administration shows.

As this summer's gas storage refill begins in earnest, the South Central supply balance looks increasingly stretched thin by stagnant production and growing LNG export demand on the Gulf Coast.

This spring, gas production across Texas and the US Southeast has grown little more than 180 MMcf/d compared with year-ago levels, data from S&P Global Commodity Insights showed. Declines in output this year from the Permian Basin and the Haynesville are at least partly to blame for the region's indigenous supply weakness.

Stagnant production has met with growing demand across the region, mainly for exports.

In 2022, feedgas demand from the Gulf Coast LNG export terminals has averaged about 11.4 Bcf/d – an increase of more than 2 Bcf/d over the past year. Over the same period, Texas gas pipeline exports to Mexico are up more than 250 MMcf/d to an average 5.2 Bcf/d in 2022, S&P Global data showed.

Outlook

In late March, feedgas demand from the five operational Gulf Coast LNG export terminals – including Sabine Pass, Cameron LNG, Calcasieu Pass, Freeport LNG and Corpus Christi – averaged a record-high 11.7 Bcf/d with single-day deliveries briefly surpassing 12.5 Bcf/d.

During the upcoming summer months, Gulf Coast export demand is expected to continue rising, fueled largely by rising feedgas deliveries to Venture Global's Calcasieu Pass where demand could grow some 600 MMcf/d over the months ahead as the terminal reaches its 10 million mt/year phase 1 capacity.

By August, daily feedgas demand along the US Gulf Coast is forecast to average over 12 Bcf/d potentially tightening regional supply just as the South Central region begins its summer withdrawal period.

Historically, high power demand in the third quarter has prompted drawdowns from salt dome storage between mid-July and early September. This summer, LNG demand growth across the region could require a lengthier and potentially more impactful withdraw period.

For the Gulf Coast gas market, strong LNG export demand and a potentially persistent storage deficit could be enough to keep prices elevated across the region – especially at the Henry Hub. On April 6, summer 2022 prices at the benchmark location briefly traded into the $6.50s/MMBtu before easing back to levels below $6.20 at market settlement, S&P Global data showed.