Street Calls of the Week
- Exports of U.S. liquefied natural gas have been breaking records since the start of this year.
- Higher prices for U.S. natural gas seem to be inevitable as the main shale gas basins experience the same trends as oil basins.
- Industry executives: gas drillers need prices of $5 per mmBtu to invest in drilling in less lucrative, costlier parts of the shale patch.
US natural gas prices this week hit a two-week low on forecasts of milder weather ahead. At $3.03 per mmBtu, natural gas was the lowest since late September—but it was significantly higher than in October 2024. Surging LNG exports may have something to do with this. The situation poses something of a dilemma for President Trump.
When he came into office, Trump vowed to make energy cheap and make America energy-dominant globally. In oil, this means low prices at the pump and ever-growing exports. In natural gas, the goal is identical—and equally tricky to achieve due to the mutual exclusivity of the two elements of that goal.
Exports of U.S. liquefied natural gas have been breaking records since the start of this year. The latest data, for September, shows a total of 9.4 million tons, up from the previous record-breaking monthly total, exported in August, at 9.3 million tons. Chances are that as Europeans rush to stock up on gas ahead of winter, another record will be broken this month. The question now is whether gas drillers will keep up with the export growth—and whether they would want to.
Like crude oil drillers, natural gas producers in the United States are quite sensitive to price changes. When gas prices trend lower for long enough, drillers start cutting production. But now, there does not seem to be a reason to do that – gas prices are up by about $1 per mmBtu over the past year, and the demand outlook is absolutely bullish, with data centers driving construction of new natural gas power plants at home and Europe’s commitment to buy a lot more U.S. energy driving export growth. One point to Trump’s energy dominance agenda, but at the expense of his cheap energy at home.
The United States became a gas superpower thanks to the shale industry. However, shale basins are maturing, the Wall Street Journal noted in a recent report on the status of President Trump’s energy agenda. Just like with oil, it would become costlier to get more natural gas out of the ground in the coming years—and this would make gas more expensive for both consumers at home and buyers overseas.
“If you want to export all this LNG, if you want data sector growth, all the power demand growth, you’re going to need higher prices,” Eugene Kim, analyst at Wood Mackenzie, told the Wall Street Journal. “And that goes in contradiction to what Trump wants, which is lower energy.”
Norway found this out a couple of years ago when it boosted gas and electricity exports to struggling Europe, only to discover this meant higher electricity prices for Norwegians, which Norwegians did not particularly like. The government promptly set curbs on energy exports to keep costs affordable at home.
“Upgraded forecasts show that the world will need more gas for power generation, heating and cooling, industry and transport to meet development and decarbonisation goals,” the head of Shell’s LNG trading division, Tom Summers, said earlier this year, with the release of the company’s LNG demand outlook, which saw said demand soaring by 60% by 2040.
The U.S. Energy Information Administration, meanwhile, says that LNG exports in July this year came in at 14 billion cu ft. This could rise to 27 billion cu ft, according to analysts cited by the Wall Street Journal. It looks like a best-case, dream-grade scenario for U.S. LNG producers during an administration that is eager to help them boost export capacity. For consumers, not so much.
Higher prices for U.S. natural gas seem to be inevitable as the main shale gas basins experience the same trends as oil basins—some of which, by the way, produce a solid portion of the country’s gas total as associated gas released from oil wells. These trends include depletion of the so-called sweet spots, or in other words, the lowest-cost, highest-yield parts of the reservoirs. This means higher production costs going forward, and higher production costs mean higher end prices.
According to industry executives mentioned by the WSJ in its report, gas drillers need prices of $5 per mmBtu to invest in drilling in less lucrative, costlier parts of the shale patch. That would be double the price increase for U.S. gas over the past 12 months. Yet it’s either that or a tighter supply due to less drilling, which would also push final gas prices higher. This, however, is not something producers want—because it destroys demand.
“We want to see a stable, long-term price for the commodity,” the chief executive of Aeton Energy Management said earlier this year. “What we don’t want to see is demand destruction because of price volatility.” Long-term stability in energy commodity prices is an elusive dream, but on the flip side, both oil and gas demand are rather inelastic. This would suggest everyone should brace for more expensive gas.
Related: Hungary Slams EU’s Energy Policy