Extreme volatility in the global LNG market in 2023 will continue to encourage US LNG export terminals to run at high levels, but US Henry Hub prices stand to fall as liquefaction capacity additions flatline, according to S&P Global Commodity Insights' latest 2023 energy outlook.

A lack of new liquefaction facilities coming online globally stands to constrain natural gas supply growth despite persistently high prices, according to the outlook. The result will be global gas markets forced to balance on demand destruction and existing stocks instead of LNG supply growth, a dynamic that will be particularly apparent in Europe, where gas and power markets may be even tighter in 2023 as the region faces its first year without significant volumes of Russian pipeline gas.

"There is no slack in the system," Michael Stoppard, global gas strategy lead and special adviser at S&P Global, said during a Dec. 8 briefing with reporters. "So we can expect a continuation and a reinvigoration of extreme market volatility that we have seen in both gas and power prices.

"Disruptions on the supply side and any clear deterioration of economic output will be met by markets with a volatile price response."

Europeans have scrambled to build LNG import infrastructure in an effort to find alternatives to pipeline deliveries from Russia following its invasion of Ukraine in late February. Constraints at existing European regasification terminals in 2022 have led to a dislocation between the northwestern European delivered LNG price and the continental TTF price, with the Platts DES Northwest Europe reaching a record discount of more than $29/MMBtu to TTF in early October before tracing back to around $10/MMBtu currently.

S&P Global expects a large increase in European import infrastructure over the next year that could ease the bottlenecks, with some 10 new LNG import terminals proposed or constructed that could be online by the end of 2023. Loosened regasification constraints are expected to tighten the spread between delivered LNG at European terminals and continental gas prices, said Ross Wyeno, lead analyst for LNG Americas at S&P Global.

"Our belief is that the net impact of that will be to draw global LNG prices upwards this winter so that Asian buyers are forced to directly compete with the gas buyers within Europe," Wyeno said. "Then potentially we could see prices trailing off a bit more next summer."

Across energy markets, China's coronavirus policy is the most important fundamental factor for global energy demand in 2023, said Dan Klein, head of Energy Pathways at S&P Global. Lockdowns softened China's energy demand in 2022, providing relief for gas, oil, and coal markets as Europe scrambled to replace energy supplies from Russia following its invasion of Ukraine in late February.

But the S&P Global outlook presumes China's total energy demand will increase by 3.3 million barrels of oil equivalent per day in 2023 from virtually no growth in 2022, representing 47% of the global energy demand growth next year.

US LNG export additions flatline in 2023

Persistently high prices have kept existing US LNG terminals running at or near close to full capacity in 2022. US feedgas demand was about 11.5 Bcf/d Dec. 8, after hitting nearly 13 Bcf/d Dec. 1, according to S&P Global data. The Dec. 1 flows marked the highest level of US LNG feedgas deliveries since before an early June explosion and fire at the Freeport LNG plant in Texas pushed some 2 Bcf/d of gas back into the domestic market due to loss of feedgas demand.

Freeport LNG is working to resume production by the end of the year. Apart from the Freeport return, S&P Global described a "distinct lack of growth" in North American LNG capacity until late 2024, which is when the developer of the 18.1 million mt/year Golden Pass facility under construction in Texas expects to start production.

The lack of new US LNG export capacity and domestic production that is expected to rise by nearly 3 Bcf/d are factors contributing to softer Henry Hub prices in 2023.

S&P Global forecasts prices at Henry Hub will average $5.47/MMBtu across 2023, peaking near $7/MMBtu across the first quarter before dipping below $5/MMBtu across the second and third quarters of the year amid tight gas balances and economic headwinds in the US and abroad.

Companies close to the heart of the US gas value chain concur that 2023 is likely to offer more gas price volatility, with Freeport LNG's restart one of several factors promising to stir markets in the year ahead.

"I think there will certainly be volatility," Kinder Morgan CEO Steve Kean told analysts at the Wells Fargo Midstream and Utilities Symposium on Dec. 8. "And as we get LNG back in ....those are big moves, big chunks of demand coming on."