This year's European energy crisis has put U.S. natural gas in high demand and in a position of acute geopolitical relevance. But the war in Europe and resulting scramble for energy supplies have also shown that the U.S. is no longer immune to natural gas price volatility in world markets.

U.S. liquefied natural gas exports have surged to meet the intense global demand, with the lion's share headed to Europe following Russia's invasion of Ukraine in late February.

Executives at EQT Corp., the U.S.'s largest gas producer by volume, recently highlighted the role of U.S. LNG in helping to refill Europe's natural gas storage ahead of the winter. However, they emphasized that shifts in international gas flows are likely to persist.

"Those thinking that the singular goal is making it through winter failed to understand the scale of the problem at hand," EQT CEO Toby Rice said during a conference call.

Now, U.S. gas consumers are also facing the prospect of higher winter gas bills than in recent years, even as they are more insulated from the extreme energy prices Europe is facing because the U.S. is limited in how much LNG it can ship.

Exports, prices rise

Gas flows to the seven major U.S. LNG export facilities in 2022 are up compared to 2021.

Through Nov. 1, feedgas deliveries have averaged about 11.7 Bcf/d, compared to nearly 10.4 Bcf/d over the same period of 2021, according to S&P Global Commodity Insights pipeline flow data. 

Prices at the U.S.'s key natural gas benchmark, Henry Hub, spiked during the year to the highest levels in years. The U.S. Energy Information Administration recently forecast that during winter, gas prices would be up 54% from the same period a year ago to average $7.26/MMBtu at Henry Hub.

The U.S.'s increasingly intertwined role in global gas markets has driven some concerns over whether continuing to build out LNG export capacity will ultimately translate to higher domestic natural gas prices.

The Federal Energy Regulatory Commission's recent winter reliability report pointed to the "continued growth of LNG exports" — along with lower-than-average natural gas storage, rising domestic natural gas consumption and tepid natural gas production growth — as key factors underpinning higher gas prices for U.S. consumers.

"We all know what's happening with our friends over in Europe right now," FERC Chairman Richard Glick said Oct. 20. "But it does have an upward pressure on natural gas prices, and it's something we need to think about."

Clark Williams-Derry, an energy finance analyst with the Institute for Energy Economics and Financial Analysis, echoed some of those concerns, saying that exports are now "squeezing" the amount of gas U.S. consumers have available to them.

Williams-Derry pointed to an outage at the Freeport LNG Development LP since an early June fire and explosion at the facility that cut U.S. export capacity by about 15%. The shut-in pushed some 2 Bcf/d of lost feedgas demand back into the domestic market, sparking a drop in Henry Hub prices. The LNG operator has targeted a partial restart of production in November.

"There were question marks about whether natural gas exports were causing high prices, but those were answered with an exclamation point when the Freeport LNG plant exploded," Williams-Derry said in a recent briefing with reporters. "The market reaction was immediate. We saw a 12% drop in natural gas prices when this one plant was taken offline."

But in the near-term, natural gas experts mainly attribute gas price movements in the U.S. to domestic supply and demand changes. LNG export facilities are running at capacity, but they were expected to — and that expectation was baked into forward-looking gas pricing.

And after hitting a high point at $9.71 on Aug. 22, New York Mercantile Exchange Henry Hub futures prices fell to $5.08/MMBtu at the beginning of November, according to S&P Global Market Intelligence data. Prices are expected to fall back below $5/MMBtu by the end of March 2023, Market Intelligence data shows.

Even with the expectations of added U.S. LNG export projects, Henry Hub futures prices for 2027 and 2030 remain below an average of $5/MMBtu.

Case against capping exports

International importers of U.S. gas, including those in Europe, have reason to be watchful of any U.S. policies that would limit LNG exports.

Domestically, industry participants see U.S. government-ordered cuts to LNG exports as potentially detrimental for several reasons.

"On a practical level, we believe it would be extremely unlikely for a U.S. administration to curtail LNG exports as a means to tackling domestic inflation,"  said Anusha de Silva, an associate director for global LNG at Commodity Insights.

The U.S. government mandating export curtailments would limit the amount of gas flowing into global markets and could potentially prolong the reliance on coal abroad. Such a move would also represent an abrupt policy shift with the potential to harm the reputation of the U.S. as a trading partner and energy supplier.

Knock-on effects domestically and abroad

Because LNG exports are also an increasingly important driver of U.S. production, curbing exports could risk undermining investment confidence among oil and gas companies and ultimately raise prices for consumers.

"That would be devastating to the industry, but it also would be a pretty dumb economic policy," Dan Brouillette, president of Sempra's infrastructure unit and a former U.S. energy secretary, said at an LNG industry event in October. "If you ban exports ... that production goes away and all of the economic activity that is associated goes away."

The gas flows destined for export as LNG represent a significant percentage of overall U.S. production, with average flows year-to-date representing around 12% of the average 95.85 Bcf/d in 2022 dry gas production forecast by Commodity Insights analysts.

The U.S. supply-demand equation for natural gas is also evolving with the passage of the Inflation Reduction Act and U.S. policy targeting a net-zero power sector by 2035.

"That could mean that a lot less gas is consumed in the U.S. as a whole," Anne-Sophie Corbeau, a research scholar at Columbia University's Center on Global Energy Policy, said in an interview. "Less demand equals more supply available for exports."

As it stands, U.S. LNG exports have little room to grow until the Golden Pass LNG Terminal under construction in Texas begins production more than a year from now, creating short-term insulation from global prices. The developer of Golden Pass, backed by Exxon Mobil Corp. and QatarEnergy, expects the project to start up in 2024 and call on up to about 2.6 Bcf/d of feedgas deliveries once the facility is fully online.

Additional export capacity stands to support higher domestic prices in the medium term as new projects come online, according to Commodity Insights and other analysts.

"The U.S. has the recoverable resources necessary to single-handedly double the global LNG market," EQT's Rice said. "I'd say the desire for bringing more LNG to this world has continued to strengthen."

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