America's stored natural gas reserves are lower than normal headed into the winter heating season, and gas prices have increased by about 150 percent compared to last year. A boom in LNG exports is part of the reason: thanks to years of investment in new liquefaction infrastructure, about 10 percent of the nation's natural gas production is now exported in the form of liquefied natural gas (LNG) - primarily to Asia. Spot prices in the western Pacific are running at record highs of up to $56 per million BTU; in the U.S., that gas costs about $5.50 today, and the price difference in between leaves ample room for profit margins.
In June, U.S. LNG export volumes soared to a record monthly high of more than 10 trillion cubic feet per day. That represents more than 10 percent of the entire daily natural gas production of the United States. Domestic demand for gas also rose over the summer, driven by high regional temperatures and electricity demand for air conditioning. With higher exports, higher domestic demand and flat production, less natural gas was injected into U.S. underground storage reservoirs - leading to higher prices as the northern hemisphere heads into winter.
The Energy Information Administration forecasts that U.S. inventories of natural gas will reach about 3,600 billion cubic feet (Bcf) by November 1, the beginning of the winter heating season. This amount is about 160 Bcf below the five-year average, roughly equal to two weeks of U.S. LNG export activity.
Slimmer storage volumes mean that American utilities and consumers will be paying the highest winter gas prices in 14 years, according to EIA - an average of about $5.67 per million BTU. This is more than double the winter prices in early 2016, the year that LNG producers began exporting liquefied gas from the lower 48 states for the first time.
The EIA forecast for this year's gas prices could be an underestimate, according to analysts. “You could easily see [U.S. natural gas] reach $6 and you could see it get to $8 to $10,” said John Kilduff, partner with Again Capital, speaking to CNBC. “Any early season cold weather outbreak will juice this thing.”
Going forward, Chinese state-owned energy firms are showing particular interest in locking in long-term sales contracts to buy American natural gas, according to Reuters. Privately-owned Chinese trading house ENN has reportedly agreed to pay U.S. LNG exporter Cheniere roughly 115 percent of the American natural gas Henry Hub price, plus $2.50 per million BTU for liquefaction, plus shipping; though this is a hefty premium, it is still just a fraction of the current Asian spot prices. State-owned CNOOC and Sinopec are said to be in talks for similar deals with U.S. exporters, and they have a powerful motive: China's LNG import demand is expected to increase by about 60 percent over the next decade.