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US gas producers may struggle to meet LNG demand

  • Market: Electricity, Natural gas
  • 18/07/24

US natural gas producers looking to become the primary suppliers to increasingly dependent overseas markets may still need to overcome tight pipeline capacity, volatility in oil markets and even growing competition from the US power sector.

Large producers such as EQT and Chesapeake Energy are banking that the rapid buildout of LNG export capacity will connect the US to higher-priced markets and provide an outlet for a glut of US supply. At the same time, European buyers are depending on US gas to help wean the continent off Russian supplies since the Russia-Ukraine war broke out in 2022. But questions remain about the ability of US producers to feed the rapid expansion.

The US already leads the world in LNG exports and is on pace to double that capacity later this decade. US baseload LNG export capacity was forecast to increase to 21.1 Bcf/d by the end of 2027, about one fifth of today's total lower-48 US gas production, according to the US Energy Information Administration (EIA). By 2030, Shell expects US LNG production will meet about 5pc of global gas demand and 30pc of global LNG demand.

But to satisfy a world that much more reliant on US shipments of gas, US producers have to significantly grow output and build the pipelines needed to connect subterranean shale basins to the US Gulf coast, where almost all the US liquefaction capacity will be located. East Daley Analytics director Jack Weixel said regulatory challenges to permitting those pipelines threaten the US' ability to rapidly boost its LNG exports regardless of who is elected president in November.

Growing pains

There are unique challenges to raising production in all three of the US' biggest gas-producing formations — the Appalachian basins, the Permian basin of west Texas and southeast New Mexico, and the Haynesville shale of east Texas and northern Louisiana.

In Appalachia, developers have almost entirely lost faith in their ability to secure the permits necessary to build new interstate pipelines, so incremental LNG demand will probably not be met by Appalachian gas. The Permian is the US' most prolific oil field, making it an unreliable associated gas producer; a dim outlook for crude prices would mechanically slash gas output. And in the less mature Haynesville, there are "a lot of open questions on how deep that inventory is and how much (it) can actually grow," Citi equity analyst Paul Diamond said.

The threat to building new pipelines is not solely the domain of regulators, either, but can even come from within the industry itself, as US midstream giant Energy Transfer has shown over the past year by trying to block several new pipelines out of the Haynesville. Some of Energy Transfer's opponents have warned the legal dispute could hamper the gas production growth needed in the Haynesville to meet the US' coming LNG boom.

Permitting aside, some analysts consulted by Argus expressed concern about the integrity of the US gas pipeline network itself, whether due to accidents or ransomware attacks, such as that which targeted the Colonial oil products pipeline in May 2021, disrupting fuel deliveries into the eastern US.

Powerful competition

Meeting booming LNG demand could be even harder if domestic gas needs exceed expectations. Gas producers and power generators eager to serve data centers running emergent artificial intelligence software have indicated that might be the case.

EQT, the largest US gas producer by volume, in its most aggressive data center build-out scenario envisioned an 18 Bcf/d (510mn m³/d) increase in gas demand to generate electricity through 2030, while US gas pipeline operator Kinder Morgan forecast an increase between 7-10 Bcf/d. Goldman Sachs and consultancy Enverus forecast more modest increases of 3.3 Bcf/d and 2 Bcf/d, respectively.

The US power sector consumed a record-high 35.4 Bcf/d of gas in 2023, the EIA said. About 43pc of US utility-scale electricity was generated by gas.

EQT may be biased. But if its forecast is accurate, US gas producers may not be able to meet all that new demand while also exporting double what the US is exporting today, FactSet analyst Connor McLean said. In that case, a high-demand scenario like EQT's could leave the US gas market undersupplied, boosting US gas prices and closing the spot price arbitrage between US pipeline gas and global LNG, which has mostly been wide open for years.

In response to elevated prices at the US gas benchmark, Henry Hub, overseas buyers might find themselves canceling US cargoes — if their supply contracts allow for it — eating the requisite liquefaction fee and taking delivery of a cargo from Qatar or Russia instead.

Not so fast

The caveat to risks of an undersupplied US gas market is that official timelines of when LNG export terminals are expected to enter service on the US Gulf coast may be overly optimistic. Texas' planned 18.1mn t/yr Golden Pass LNG delaying first LNG on the heels of its lead contractor going bankrupt is just one recent example of this.

"All that does is give producers a little bit more time to get production to where it needs to be," Weixel said.


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News

Trump announces plan for 'reciprocal' tariffs


13/02/25
News
13/02/25

Trump announces plan for 'reciprocal' tariffs

Washington, 13 February (Argus) — President Donald Trump said today he would impose "reciprocal tariffs" on imports from an undisclosed number of countries sometime in the future, a move that could affect imports of ethanol and likely many other energy commodities. The idea behind the next major wave of tariffs Trump plans to unveil is to raise the US import tariffs to the same level foreign countries charge on exports from the US. Trump's trade advisers previously cited Brazil's tariff on US-sourced ethanol, which is higher than the US customs duty on ethanol, as an example of the disparity they would attempt to address. "They charge us a tax or tariff, and we charge them the exact same tax, very simple," Trump told reporters at the White House. As with his first tariffs against Canada and Mexico — paused until 4 March — and against China, which went into effect on 4 February, there is a great deal of regulatory uncertainty on how the tariffs will be implemented. "Nobody knows what that number is, unless you go by the individual country, and you can see what it is," Trump said. Trump's directive does not set a specific deadline for when the reciprocal tariffs will be imposed. The intent of the order is to force foreign countries to lower their tariffs against the US. But that outcome is not guaranteed. Trump's 10pc tariff on imports from China, and Beijing's more limited counter-tariffs, went into effect this month despite his claim that he would quickly negotiate with Beijing to avert a trade war. In what is becoming a norm with the tariff announcements, the Trump administration is alternatively downplaying inflationary effects of such tariffs, or casting any negative effects as justified. "Last year, US-based companies paid foreign governments $370bn in taxes," White House National Economic Council director Kevin Hassett said today. "Meanwhile, foreign companies paid the US $57bn in taxes. Are we supposed to keep doing that because of some economic model that doesn't have the whole real world in it?" The White House, at least, no longer rejects descriptions of tariffs as a tax, even though it continues to insist that only foreign exporters — not US consumers — will be paying it. Trump has imposed a 25pc tariff on imported steel and aluminum that will become effective on 12 March. He set a deadline of 1 April for all US government agencies to investigate the causes of "our country's large and persistent annual trade deficits in goods" — a review that likely will result in additional tariffs later this year against imports from the EU, UK, India, Vietnam and other major economies. The large deficit the US runs in trade in goods with India will be a subject of Trump's meeting later today with Indian prime minister Narendra Modi. The US expects India to step up purchases of crude and other energy commodities to better balance bilateral trade. Trump likewise told Japan's prime minister Shigeru Ishiba last week that Tokyo should ensure that Japanese energy companies source more US oil, LNG and ethanol to "get rid of" the US' trade deficit with Japan. By Haik Gugarats Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

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Mexico factory output dips 1.4pc in December


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News
12/02/25

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