Domestic natural gas prices are well insulated from events in the Middle East, especially given the mild March weather and healthy gas storage inventories as the winter winds down.

Additionally, global LNG prices have risen dramatically, but all US export terminals are already at capacity and therefore rather price-insensitive, while US and Canadian production remains close to record highs. International markets are clearly in turmoil in dealing with the closure of the Strait of Hormuz, which has curtailed 20% of global LNG supply and roughly the same percentage of oil production.

However, this rather complacent status quo in the short term may not last into the summer due to the ongoing commissioning of Golden Pass LNG, which, when completed by the end of June, will boost exports by another 2 BCF/D. Given the global demand for LNG, it is likely that US terminals will forego some seasonal maintenance, thus keeping exports at maximum capacity, which is currently running 19.3 BCF/D and will exceed 21 BCF/D by the time everyone is turning on their air-conditioners.

With exports to Mexico also increasing, as the Market Drivers chart indicates, US exports could reach just under 30 BCF/D, which will require production above 109 BCF/D to comfortably support. Under these conditions, higher prices than what is currently reflected in the storage injection strip (April-October) will be necessary to support additional drilling in the dry gas areas.

There is still a significant amount of uncertainty regarding the outcome in the Middle East and the timing of a return to “normalcy.” Domestic US power and gas prices will continue to be premised on local supply and demand metrics for the most part, but the overseas situation will still exert influence and will require monitoring. Pricing structures that provide protection from volatility to the upside while still allowing participation during periods of nominal demand and lower prices are proving to be valuable.