U.S. Natural Gas Physical Trading Volume and Marketed Production Reach Record Highs

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Cornerstone Research report: COVID-19 pandemic expected to reduce U.S. LNG exports in 2020

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“Continuing a seven-year trend, in 2019 we saw the largest volume of index-priced transactions and the lowest volume potentially reported to indices since the Federal Energy Regulatory Commission began reporting Form 552 data in 2008."

Both physical natural gas trading activity and marketed production in the United States reached record highs in 2019, according to a Cornerstone Research report released today. However, the COVID-19 pandemic has caused global consumption to contract and storage to build up in the first half of 2020. The effects on demand in the second half of 2020 and beyond remain uncertain.

The report, Characteristics of U.S. Natural Gas Transactions: FERC Form 552 Submissions as of July 2020, found that trading activity reported by 676 respondents in 2019 rose 5% over the previous year, to 153,249 tBtu. Annual marketed production increased by 10% in 2019, surpassing 40,000 tBtu for the first time.

“Continuing a seven-year trend, in 2019 we saw the largest volume of index-priced transactions and the lowest volume potentially reported to indices since the Federal Energy Regulatory Commission began reporting Form 552 data in 2008,” said Greg Leonard, a Cornerstone Research vice president and report coauthor.

The United States has been a growing net exporter of natural gas since late 2017, with liquefied natural gas (LNG) exports making up most of this growth. In 2019, LNG’s share of total U.S. natural gas exports increased to 39%, up from 30% in 2018. But 61% of U.S. natural gas exports are still exported via pipeline to Canada and Mexico.

2020 Midyear Review: A Look at COVID-19’s Impact

The International Energy Agency forecasts a 4% drop in global natural gas demand in 2020 as a result of global lockdowns to mitigate the spread of the coronavirus and low heating demand due to warm weather.

LNG export volumes remained high in the first four months of 2020, with average daily U.S. LNG exports 54% higher than in 2019, but they declined by 17% between April and May 2020. More than 100 U.S. LNG cargoes scheduled for loading in June onwards have been canceled to date, causing U.S. LNG exports to operate at less than half capacity.

“LNG-driven export growth is expected to slow in the second half of 2020 due to COVID-19, leading to a storage buildup,” said Nicole Moran, a Cornerstone Research principal and report coauthor. “While global demand for natural gas has decreased, consumption remains relatively resilient in the United States, as power generation continues to shift from coal to natural gas.”

Key 2019 Findings

  • The 20 companies with the largest transaction volumes (by purchases and sales) accounted for approximately 42% of total reported volume.
  • Index-priced transactions comprised around 82% of all Form 552 transactions in 2019, compared to 67% in 2008.
  • Aggregate exchange trading of natural gas contracts decreased on the two main futures exchanges: CME Group Inc. volume fell by 11%, and Intercontinental Exchange’s volume declined by about 12%.
  • The ratio of next-day to next-month transactions was nearly unchanged between 2018 and 2019, with next-day equaling 51.2% and next-month at 48.8%. The percentage of volume based on next-month transactions has decreased by 12 percentage points between 2008 and 2019.
  • For the fifth straight year, companies that declined to report fixed-price volume to the indices made up a larger share of fixed-price volume than did companies that chose to report.
  • In 2019, about 14% of Form 552 respondents reported transaction information to the price index publishers for themselves or at least one affiliate.
  • The volume of reported transactions indicates that, on average, a molecule of natural gas was traded through approximately 2.6 transactions from production to consumption.

About Cornerstone Research
Cornerstone Research provides economic and financial consulting and expert testimony in all phases of complex litigation and regulatory proceedings. The firm works with an extensive network of prominent faculty and industry practitioners to identify the best-qualified expert for each assignment. Cornerstone Research has earned a reputation for consistent high quality and effectiveness by delivering rigorous, state-of-the-art analysis for more than 30 years. The firm has over 700 staff and offices in Boston, Chicago, London, Los Angeles, New York, San Francisco, Silicon Valley, and Washington.

See Cornerstone Research’s website for more information about the firm’s capabilities in economic and financial consulting and expert testimony.

Twitter: @Cornerstone_Res

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