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Natural Gas Demand-Supply Trends Impact Midstream Companies

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Natural gas

The natural gas production in the United States has increased significantly, especially after 2009. The monthly production rose from 1.78 trillion cubic feet in January 2009 to 2.43 trillion cubic feet in June 2018. At the same time, natural gas prices have been on a downward trend during this period. Natural gas prices averaged $5.24 per MMBtu (million British thermal units) in January 2009. The Henry Hub natural gas spot price was $2.95 per MMBtu on September 17.

The above graph shows the natural gas price over 15 years. The demand for US natural gas is expected to increase in the future due to the demand from Mexico, the power sector, and LNG (liquefied natural gas) exports.

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Exports to Mexico

US natural gas pipeline exports to Mexico exceeded 5 Bcf/d (billion cubic feet per day) for the first time in July. The expanded pipeline capacity to Mexico supported the increase in exports to the country.

LNG exports

The US is expected to add ~6.1 Bcf/d of new liquefaction capacity by 2021. Currently, the US has 3.5 Bcf/d of liquefaction capacity at Cheniere Energy’s (LNG) Sabine Pass and Dominion Energy’s (D) Cove Point projects. Kinder Morgan’s (KMI) Elba liquefaction project is expected to commission the first six of ten liquefaction trains in 2018.

Natural gas pipeline capacity

A number of projects are expected to add to the natural gas takeaway capacity, particularly in the Northeast. The projects include TransCanada’s (TRP) Leach Xpress and Mountaineer Xpress projects, Williams Companies’ (WMB) Transco pipeline expansion, and Energy Transfer Partners’ (ETP) Rover pipeline.

Next, we’ll discuss how Treasury yields might impact MLPs.

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