U.S. LNG demand on the rise thanks to power generation

Natural gas consumption for power generation in the United States is reaching record levels, despite high inventories and low prices.

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The U.S. power sector has become the main driver of natural gas demand, increasing its consumption by an average of 3.5% per year over the past three years.
This trend contrasts with declining demand in the industrial, residential and commercial sectors.
In 2023, power generation companies consumed an average of 70 billion cubic feet (Ft3) of natural gas per day, representing 44.4% of total domestic use, according to LSEG data.
Since the beginning of the year, US power generators have stepped up their consumption of natural gas, taking advantage of extremely low prices.
This increase in gas use has partially replaced coal, although gas stocks remain high due to overproduction and stagnant exports.

Record production of gas-fired electricity

Data from the U.S. Energy Information Administration show that electricity producers generated 1,334 billion kilowatt-hours (kWh) between January and April 2024, an all-time record.
This represents an increase of 47 billion kWh (4%) over the same period the previous year.
Two-thirds of this increase came from gas-fired units, with the remainder mainly from solar farms.

Inflated inventories despite record consumption

Despite this increased consumption, gas inventories remain abnormally high.
At the end of April, inventories were 671 billion cubic feet (Ft3) above the seasonal average of the last ten years.
This surplus is partly due to a mild winter in 2023/24, which limited demand for gas for heating.

Lower costs for producers

In April, the cost of gas to power generators fell to an average of $2.05 per million British thermal units (MMBtu), the lowest level recorded since 1973 after adjusting for inflation.
These exceptionally low prices encouraged generators to run their units for longer hours, including the less efficient plants that usually operate only during peak periods.

Maximizing production

Single-cycle gas turbines and gas-fired steam generators, usually less efficient, operated at a record seasonal capacity factor of over 14% in April 2024, compared with 12% in April 2023.
Similarly, gas-fired steam turbines reached over 15% of their theoretical maximum capacity, the highest in over a decade.

The challenges of decarbonizing the electricity sector

The electricity sector’s growing dependence on natural gas raises concerns about the long-term sustainability of this energy source.
A rapid transition to decarbonized power systems could lead to a decline in demand for natural gas, at a time when other gas-consuming sectors are already in decline.
The trend towards electrification of heating and power systems in homes and businesses has reduced the direct use of natural gas.
Heat pumps and electric boilers have gradually replaced gas boilers, although the pace of heat pump sales has slowed due to high electricity prices and interest rates.

Persistent surplus

Despite record production, gas inventories remain high, largely due to recurring problems with the Freeport LNG export terminal.
Gas production reached a new peak in early July 2024, due to high temperatures, low wind speeds, and low gas prices.
However, inventories are still among the highest on record for this time of year.
Futures prices plummeted in July, returning close to multi-decade lows.
These extraordinarily low prices send a strong signal to gas producers to further reduce drilling and production, following an initial series of cuts announced in February.
They are also encouraging power producers to maximize the use of their units, which could lead to record production this summer.

TotalEnergies commits to Train 4 of the Rio Grande LNG project in Texas, consolidating its position in liquefied natural gas with a 10% direct stake and a 1.5 Mtpa offtake agreement.
US producer EQT has secured a twenty-year liquefied natural gas supply contract with Commonwealth LNG, tied to a Gulf Coast terminal under development.
The Chief Executive Officer of TotalEnergies said that NextDecade would formalise on Tuesday a final investment decision for a new liquefaction unit under the Rio Grande LNG project in the United States.
Monkey Island LNG has awarded McDermott the design of a gas terminal with a potential capacity of 26 MTPA, using a modular format to increase on-site output density and reduce execution risks.
The Voskhod and Zarya vessels, targeted by Western sanctions, departed China’s Beihai terminal after potentially offloading liquefied natural gas from the Arctic LNG 2 project.
ADNOC Gas will join the FTSE Emerging Index on September 22, potentially unlocking up to $250mn in liquidity, according to market projections.
Norwegian company BlueNord has revised downward its production forecasts for the Tyra gas field for the third quarter, following unplanned outages and more impactful maintenance than anticipated.
NextDecade has signed a liquefied natural gas supply agreement with EQT for 1.5 million tonnes annually from Rio Grande LNG Train 5, pending a final investment decision.
Sawgrass LNG & Power has renewed its liquefied natural gas supply agreement with state-owned BNECL, consolidating a commercial cooperation that began in 2016.
Gazprom and China National Petroleum Corporation have signed a binding memorandum to build the Power of Siberia 2 pipeline, set to deliver 50 bcm of Russian gas per year to China via Mongolia.
Permex Petroleum signed a $3 million purchase option on oil and gas assets in Texas to support a strategy combining energy production and Bitcoin mining.
Enbridge announces the implementation of two major natural gas transmission projects aimed at strengthening regional supply and supporting the LNG market.
Commonwealth LNG’s Louisiana liquefied natural gas project clears a decisive regulatory step with final approval from the U.S. Department of Energy for exports to non-free trade agreement countries.
The Indonesian government confirmed the delivery of nine to ten liquefied natural gas cargoes for domestic demand in September, without affecting long-term export commitments.
The Egyptian government signs four exploration agreements for ten gas wells, allocating $343mn to limit the impact of the rapid decline in national production.
Hungary has imported over 5 billion cubic metres of Russian natural gas since January via TurkStream, under its long-term agreements with Gazprom, thereby supporting its national energy infrastructure.
U.S. regulators have approved two major milestones for Rio Grande LNG and Commonwealth LNG, clarifying their investment decision timelines and reinforcing the country’s role in expanding global liquefaction capacity.
Hokkaido Gas is adjusting its liquefied natural gas procurement strategy with a multi-year tender and a long-term agreement, leveraging Ishikari’s capacity and price references used in the Asian market. —
Korea Gas Corporation commits to 3.3 mtpa of US LNG from 2028 for ten years, complementing new contracts to cover expired volumes and diversify supply sources and price indexation.
Petrobangla plans to sign a memorandum with Saudi Aramco to secure liquefied natural gas deliveries under a formal agreement, following a similar deal recently concluded with the Sultanate of Oman.

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