Largest, Most Competitive Natural Gas Market Benefits Consumers

Dean Foreman
Posted February 3, 2020

So far this year, U.S. natural gas prices at Henry Hub have made for the lowest January record in over 45 years, adjusted for consumer price inflation. 

As of Jan. 29, the U.S. natural gas spot price at Henry Hub was $1.94 per million Btu – nearly 35% below the price of one year ago and 76% lower than in 2008.

In fact, we know from the Bureau of Labor Statistics that U.S. households saved an average of more than $120 per year on natural gas in 2018 compared with 2008. That’s $10 per month for more than 127,000,000 households – or $52 billion less spending on home and water heating.

And residential consumers represent only about one-third of total U.S. expenditures on natural gas, so these record low prices in the middle of winter 2020 are a big deal and of benefit to everyone. 

But some news outlets are casting these record low natural gas prices as if the natural gas market is broken. It’s not. 

Rather, this is a win for consumers, an indicator of strong underlying economics in production, and keen positioning for the future U.S. exports of liquefied natural gas (LNG).  Let’s look at the facts.

In the following charts are two fundamental indicators we monitor frequently: estimated breakeven prices and productivity.

The graph on the left shows the so-called breakeven price – a calculation of what spot market price is needed to at least break even when investing to drill a new well. By BTU Analytics’ (subscription) estimates for December 2019, most of the major dry gas producing regions have breakeven prices below $2.00 per million Btu.

In the chart on the right, the U.S. Energy Information Administration (EIA) estimates the yield of natural gas and oil coming from new wells across major production areas has remained solid over the past year.

Although individual company situations may vary, together these indicators suggest on average that U.S. natural gas production should be well positioned despite the recent downturn in prices.

If anything, low U.S. natural gas prices have stimulated global demand for U.S. LNG exports.  Through the first 11 months of 2019, the U.S. exported nearly 1.6 trillion cubic feet of natural gas from just five export terminals, all of which are expected by EIA to complete further capacity increases in 2020. The appetite for U.S. LNG exports has also expanded geographically – spanning Europe, Latin America, and even the Middle East and Africa – despite concerns for relatively little buying by China, trade restrictions and economic weakness.

Importantly, a main market dynamic we’re seeing is that these U.S. LNG export projects have continued to require their own new and incremental natural gas resource developments to underpin the projects. This naturally requires building up drilling programs in advance to support exports, which consequently has provided a greater amount of natural gas here at home than we’ve ever seen before, especially with record low January natural gas prices. 

Sustaining this momentum for natural gas requires continued progress on energy policies that help enable trade and infrastructure, especially for resource development, pipelines and exports. The progress made in the past week, with the recently signed U.S.-China Trade phase one agreement and the U.S.-Mexico-Canada Agreement (USMCA), is a welcome sign of a de-escalation of the trade confrontation and should present opportunities for new trade engagements. In addition, recent proposals to reform the federal review process for infrastructure, known as NEPA, promise to help speed permitting of new interstate natural gas pipelines, LNG liquefaction trains, and port and waterway improvements, all of which are needed to bring even more U.S. natural gas to overseas markets.

Again, U.S. natural gas is not a broken market, but rather has become the single largest and most competitive natural gas market in the world – and one that is performing at epic levels that are to the greater benefit of consumers here at home and abroad.