• 4 minutes Phase One trade deal, for China it is all about technology war
  • 7 minutes IRAN / USA
  • 11 minutes Shale Oil Fiasco
  • 16 minutes Swedes Think Climate Policy Worst Waste of Taxpayers' Money in 2019
  • 9 hours Indonesia Stands Up to China. Will Japan Help?
  • 1 day China's Economy and Subsequent Energy Demand To Decelerate Sharply Through 2024
  • 21 hours Beijing Must Face Reality That Taiwan is Independent
  • 22 hours Gravity is a scam!
  • 1 hour We're freezing! Isn't it great? The carbon tax must be working!
  • 25 mins Three oil pipeline projects inch toward goal-line for Canada
  • 18 hours US Shale: Technology
  • 5 hours The Libyan Oil in a Sea of Chaos, War and Disruptions
  • 9 hours OIL & GAS LOSSES! Schlumberger Posts $10B Loss in 2019
  • 22 hours Trump has changed into a World Leader
  • 12 hours Prototype Haliade X 12MW turbine starts operating in Rotterdam
  • 19 hours Iranian government can do everything to avoid attacking American people.
Alt Text

U.S. Gas Giant Downgraded To Junk Status

America’s largest natural gas driller…

Alt Text

China’s Gas Demand Growth Slows Significantly

China has seen its natural…

Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

More Info

Premium Content

Is Big Oil's Natural Gas Bet Turning Sour?

Big Oil has staked quite a claim in the natural gas industry in recent years, with supermajors building their presence in that segment in anticipation of the global energy shift from more to less polluting energy sources. Now, however, this claim is backfiring.

Bloomberg’s Rachel Adams-Heard wrote last week that the supermajors have suffered a marked dip in their second-quarter earnings because of record-low natural gas and LNG prices: the result of the classic combination between fast-growing production and demand that has yet to catch up.

The pain might turn out to be particularly acute for U.S. producers. It’s no news that record-high production from the shale patch has driven prices to lows that have eaten deeply into producers’ bottom lines. One industry executive, the CEO of the largest gas producer in the country, EQT, recently called the shale boom “an unmitigated disaster for drillers and investors” and he is probably not alone in this sentiment.

U.S. energy companies are literally producing too much gas at a time when domestic demand is stalling and global demand is being met by a growing variety of gas exports by pipeline and tankers. LNG projects in the U.S. are also suffering the effects of low gas prices. As RBC recently forecast, this year, the natural gas market will remain oversupplied, and this oversupply will extend into 2020 as well.”

Speaking of LNG, it’s a favorite growth path for the supermajors. Two news stories from the last couple of days illustrate its significance for Big Oil’s long-term plans to become Big Gas.

Noble Energy and Israeli Delek, though not exactly supermajors, announced plans to launch a floating LNG facility at their jointly operated Leviathan field in the Israeli section of the Mediterranean. For now, the two are considering an annual capacity of between 2.4 and 5 million tons of LNG. To fund the project, the two would rely on a long-term charter contract with an LNG shipping company.

Halfway across the world, Exxon and Total are negotiating with the government of Papua New Guinea on the expansion of their PNG LNG facility, which has a nameplate capacity of 6.9 million tons annually but is producing more. The expansion, Papua LNG, would bring the total capacity to 16 million tons annually. Related: China Unlikely To Slap Retaliatory Tariff On U.S. Crude Oil

At the end of July, Bloomberg reported that gas prices in Asia were heading for the lowest in as much as ten years. That will certainly hurt LNG exporters, especially those that trade their production on the spot market, which means most U.S. producers. Supermajors, for the most part, have been lucky with long-term contracts pegged to crude oil prices, which has curbed the negative effect of gas prices on their bottom lines and will continue to mitigate it.

Price woes aside, there is also the problem of demand. In Europe, it is relatively strong but with little growth potential as the EU continues to advance its renewable energy agenda. Analysts are unanimous that Asia will continue to drive gas demand just as it does oil demand--and in Asia, China will spearhead the drive.

China is expected to become the world’s top LNG importer within the next five years, just as the U.S. becomes the largest exporter by 2024, with annual exports of over 100 billion cubic meters in that year. This could be a match made in LNG heaven as long as trade tensions calm down. As the prospects of this happening remain remote, it seems there is more trouble on the way for U.S. natural gas producers, including the supermajors with huge acreage in the shale patch.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage




Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News