The feedgas to LNG export terminals in June was 1.4 Bcf/d lower than feedgas volumes last year, according to IHS Markit figures, and more than 5.0 Bcf/d lower than the record-high feedgas volumes estimated in late March. The coronavirus pandemic has caused a global plunge in energy demand, though Asian gas markets are gradually recovering.
Lockdowns to contain the coronavirus, which has hit the United States particularly hard, has substantially reduced gas consumption from industries and businesses. Estimates from S&P Global Platts suggest that average industrial natural gas consumption in June 2020 has declined about 2.1 Bcf/d, or 9.6%, compared to June last year.
Higher gas-burn despite low electricity demand
Forward gas prices are set to remain low throughout this summer, accelerating the coal-to-gas switch in the power sector where gas has become the cheaper fuel source compared to thermal coal. Average daily power burn is up about 6% in June compared to last year, according to U.S. government data.
Strikingly this rise in gas power generation occurred despite essentially flat, if not falling, electricity demand growth so far this June.
Production falls slower than demand
Another effect of historically low natural gas prices is declining natural gas production. According to data from IHS Markit, dry production totalled about 90 Bcf/d in June, down nearly 3.7 Bcf/d from March 2020.
The recent steep fall in demand has outpaced the declines in production, putting downward pressure on Henry Hub prices. Further declines in gas production are expected due to the inherent time lag between gas price changes and adjustments to production levels.
Henry Hub seen rebound in winter 2020/21
In its June STEO forecasts, the U.S. Energy Information Agency (EIA) says dry production will continue to fall steadily, reaching a low of 84.2 Bcf/d in May 2021.
Falling gas production will put upward pressure on the Henry Hub price in the coming months, if demand keeps recovering. The June STEO expects higher natural gas prices by the end of 2020, forecasting Henry Hub to average $2.95/MMBtu in December.