While SynMax does not, at this time, publish a full NatGas S&D balance, we expect the S&D balance will be turning more bullish for the remainder of 2024 and well into 2025. The dominant reason is increasing LNG export demand. According to the EIA LNG liquefaction schedule of projects, new LNG demand will begin sometime in Q2 2024 and will continue well into 2025.
According to the EIA, the first new LNG train from Golden Pass Train 1 will begin in Q2 2024. However, recent reports from ExxonMobil have stated that Gold Pass Train 1 will not come online until Q1 2025. Nevertheless, even if the 2024 LNG projects are delayed into 2025, natural gas demand from LNG exports will still increase by about 6 Bcf/d by the end of 2025. If we assume an 80% utilization factor on the baseload nameplate capacity, natural gas demand would increase by 4.8 Bcf/d on average by the end of 2025.
While producers don’t know how much natural gas they will be producing by the end of 2025, it is likely, despite the large fracking and drilling efficiency gains, that they will have to work hard to keep up with the very large increase in Lower 48 LNG export demand by the end of 2025. Obviously, the natural gas forward curve at the Henry Hub is discounting a large portion of the demand increase when looking at the huge record contango of the market. The Dutch TTF natural gas market is also in contango, but not as much as the NYMEX Henry Hub market.
But is the forward curve at the Henry Hub discounting the large increase in LNG demand by enough? The answer lies in the spread between the Henry Hub and the TTF Dutch natural gas forward curves. While both the TTF and the Henry Hub forward curves are in contango, the spread between the 2 markets is very interestingly flat. This is counterintuitive because we would expect the spread to be backwardated as more supply goes into Europe and more demand comes out of the USA.
This indicates that the Henry Hub NYMEX forward curve in 2025 is relatively too low and not discounting enough of the LNG demand increase or that the TTF Dutch forward curve is relatively too high in 2025 and not discounting enough the LNG supply increase. Time will ultimately tell on this multi-billion dollar spread which will affect the outcomes of many traders, producers, and LNG off-takers.