The LNG export boom is depleting US natural gas supplies and driving up prices

The US is shipping more natural gas overseas than ever before, keeping domestic inventories tight and electricity prices high.

Natural gas prices typically drop in the spring when heating demand drops, but before the air conditioning season begins. Gas producers and traders use the off-season to build up supplies for the summer and store fuel in storage until the weather turns and demand and prices rise.

Prices rose well into the spring this year, thanks to record export volumes and promises from the White House to support shipments of even more liquefied natural gas (LNG) to allies across the Atlantic to replace Russian supplies.

US natural gas futures for delivery in May ended at $5.605 per million British thermal units on Wednesday, more than double the level a year ago. So far in 2022, natural gas prices are up 50%. The last time the year got off to such a strong start was 2008, when energy prices soared in the run-up to the financial crisis. A deep recession and the fuel abundance of the shale drilling boom kept prices low for more than a decade afterwards.

War in Europe is driving the latest spike, along with weather events over the past year that have drained gas supplies around the world. Also, US producers have been wary of torpedoing prices and lowering their profitability by over-drilling. The amount of gas stored in the lower 48 states is 17% below the five-year average for this time of year, though production has dwarfed pre-pandemic highs, according to the Energy Information Administration.

Just as the advent of shale drilling ushered in a domestic fuel glut that kept prices in check, America’s rise to become the world’s most prolific LNG exporter puts it a new level below, analysts say.

“We are in a new phase for US gas markets,” said Ryan Fitzmaurice, Senior Commodity Strategist at Rabobank. He expects US benchmark prices to trade between $4.50 and $6, versus the $2 to $3.50 natural gas has traded for the past few years.

This forecast is confirmed by the energy producers. The majority of oil and gas executives polled by the Federal Reserve Bank of Dallas this month said they expect natural gas prices to end the year between $4 and $5.50. It took snowstorms for much of the last decade to drive prices this high.

Goldman Sachs Group Inc.

Analyst Samantha Dart said she expects natural gas prices to be $4.50 this summer and $5.15 this winter, down from her previous forecasts of $3.45 and $3.55, respectively. However, she said it should be 2025 before enough additional U.S. LNG export terminals come online to really tighten domestic stockpiles and peg prices to more expensive international markets.

“U.S. gas demand going forward will be primarily driven by expansion of U.S. LNG export capacity,” Ms. Dart wrote in a note to customers on Tuesday.

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Higher gas prices have contributed to domestic inflation by driving up the cost of manufacturing plastics, fertilizers, concrete and steel. They have also meant some of the highest electricity and heating bills for Americans in years this winter. Consolidated Edison Inc.

, which supplies electricity throughout New York City, has already passed on large price increases to customers this year and this month has told them to brace for even higher bills. “You pay what we paid,” the utility said in an email to customers.

Just before the pandemic, prices fell below $2 per million British thermal units as domestic production hit new highs. Fuel became even cheaper as economic activity stalled, reaching its lowest price since the mid-1990s. Buyers abroad canceled LNG cargoes. Inventories grew.

Economic stimulus and two hot summers brought demand back. LNG prices rose in Asia and Europe, making it more economically attractive than ever to buy US shale gas, freeze it into a liquid state, and ship it overseas in specialty tankers. The invasion of Ukraine, which was met with sanctions against the attacker, has highlighted Europe’s urgent need for replacement gas from Russia.

Last week, President Biden agreed to more than double the amount of LNG the US exports to Europe in the coming years. Europe imported a record last year from the US, which overtook Qatar and Australia to become the world’s largest exporter of LNG in December.

Overseas sales rose in January, and although they fell in February because fog in the Gulf of Mexico delayed freight, analysts expect export volumes will rise this year as new plants ramp up production. The Energy Information Administration forecasts that LNG exports will average 11.3 billion cubic feet per day this year, up 16% from 2021.

In recent weeks, an expansion of Cheniere Energy Inc.

Terminal at Sabine Pass in Louisiana began filling tankers, as did a nearby liquefaction plant built about 50 miles to the east. These facilities are expected to add 2 to 3 billion cubic feet of daily export capacity, although the construction of several more export terminals will be required to fulfill White House promises to Europe.

Energy retail companies are competing with local utilities to give US consumers more choice. But in almost every state they operate in, retailers have been charging more than regulated incumbents, meaning you may be paying more for your electricity than your neighbor. Here’s why. Photo illustration: Jacob Reynolds

Write to Ryan December at ryan.dezember@wsj.com

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