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HomenewsThe US Natural Gas Boom is Fueled by Reliable European Demand

The US Natural Gas Boom is Fueled by Reliable European Demand

Even as the sector works to overcome objections to pipeline development, rising European demand has contributed to a surge in US natural gas investment.

According to the most recent US data available, production of the fuel hit 3.1 trillion cubic feet for October, an all-time high and an increase of about 50% from the level a decade ago.

According to Steven Miles, a fellow at Rice University’s Banker Institute in Houston, the market has been expanding ever since Russia started cutting back on exports to Europe in the summer of 2021.

The US shale revolution of the first decade of the twenty-first century, which ultimately resulted in the country turning into a net exporter of fuel in 2017, precedes that.

The development has not been constant, as falling natural gas prices have discouraged investment and caused one of the main participants in the industry, Chesapeake Energy, to file for bankruptcy in June 2020.

But in light of altering geopolitical factors, energy corporations now have more faith in the fuel’s long-term demand prognosis. According to Eli Rubin of the consultancy EBW AnalyticsGroup, the long-term demand “was not nearly as evident as it is today” five years ago.

The US Natural Gas Boom is Fueled by Reliable European Demand

“We have a healthy new regard for natural gas’s function in supplying energy security and for its role in helping to moderate consumer pricing, especially in light of Russia’s invasion of Ukraine.

There was a significant investment in infrastructure to convert gas into liquefied natural gas even before the invasion (LNG). 14 new liquefaction terminals have just received approval, with the first one scheduled to open in 2024.

We may potentially treble US LNG exports over the next five years, Rubin stated.

The effort comes as major energy corporations benefit from high commodity prices, which have made it possible for the sector to spend aggressively while also increasing share buybacks and dividends.

Pipeline Obstruction

Even though LNG production has increased somewhat, the dynamics of the natural gas market are still largely regional.

Prices on the benchmark European TTF contract are currently more than six times higher than those on the American Henry Hub contract, which is a comparable contract.

Because of this discrepancy, LNG export prices are more closely aligned with US levels, creating an opportunity for “middlemen” to transport the cargoes to Europe and “sell them at European pricing,” according to Miles.

Greater price uniformity across areas might result from much increased US natural gas exports, but probably not for several years.

According to Ryan Kellogg, an energy expert at the University of Chicago who specializes in global energy markets, “maybe in the long term (the United States will) export so much gas to Europe that prices between Europe, Asia, and North America become more aligned.”

The US Natural Gas Boom is Fueled by Reliable European Demand

But I feel like we’re still a long way off from that. The lack of pipeline capacity, especially in the northeastern United States, is one ongoing issue for the sector.

The Marcellus Shale, which is primarily located in Pennsylvania and is the largest natural gas basin in the US, is constrained by a lack of infrastructure.

The Mountain Valley Pipeline project, which offers a potential remedy, has been put on hold for the past five years due to opposition from landowners and environmentalists.

Climate activists and government politicians are “definitely considerably more opposed than they ever were,” according to Rubin.

However, when demand is at its highest, a lack of infrastructure might make prices more volatile. The northeastern American region of New England uses LNG for a small portion of its heating needs.

However, the area, which often experiences some of the nation’s coldest weather, is also renowned for resenting the addition of new pipeline capacity.

According to Rubin, during a cold spell, “New England is fighting with Europe for a spot LNG cargo.” “They have to pay more for the cargo to go to New England than to Europe.”

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