Large seasonal swings in exports of U.S. LNG export facilities over the coming years could create new challenges for a domestic gas market that increasingly relies on exports as a critical relief valve, according to market experts speaking Nov. 9 at the LDC Gas Forums' Natural Gas Forum 2020.

The volatility should not be as extreme as in 2020, when the coronavirus tanked demand during a spring when the market was already oversupplied after a warm winter. The demand shock prompted widespread cargo cancellations among the six major LNG terminal operational in the U.S. before a strong recovery encouraged by rising prices with winter seasonal demand increases in Europe and Asia.

"LNG export demand will be critical in balancing the U.S. gas market, and we saw firsthand just how fragile that market could be this summer," RBN Energy President David Braziel said during the event, held in San Antonio and online.

At least 175 cargoes across the U.S. were reportedly canceled for loading between April and November, according to an S&P Global Platts tally. RBN Energy estimated the canceled cargoes pushed upward of 550 Bcf of gas back into the U.S. market during the summer, which is typically a period of low gas demand in North America that sees domestic storage inventories rise before a seasonal winter drawdown.

Utilization of the export facilities bottomed at about 20%, according to IHS Markit. In recent days, feedgas deliveries to the export plants have topped 10 Bcf/d, exceeding pre-pandemic levels. The ramp-up of U.S. LNG exports is expected to continue in the coming months, but significant uncertainty remains about the export dynamics after the peak winter heating season. Another round of cancellations could ripple through the domestic gas market, experts said.

"What is new is the U.S. acting like the swing supplier to a market with those same seasonal patterns," Braziel said. "If we have another summer like we did this year and 500-plus Bcf gets backed up in the U.S. markets, gas storage projects could become attractive."

The pace of the economic recovery in Europe will be a key factor in determining the demand for U.S. LNG, Sam Andrus, executive director for North American Gas at IHS Markit, said during the event.

The global gas glut at the time the pandemic took hold caused some to worry that global gas storage inventories would fill up, especially in Europe, and lead to a big wave of cancellations of U.S. cargoes in the fall. That scenario never materialized, in part because of the depth of the cancellations over the summer.

"In the European market, this is kind of a new world, where they can fill up storage, and they have so much LNG that can come in at very low prices," Andrus said. "We are still expecting significant seasonality. It's possible they start earlier with the push back to the U.S. ... It could be that the trough is wider and not as deep. Or if they just wait until July and August to start pulling the trigger, we could have a very, very deep gas effect later in the summer."

S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.