• 3 minutes China has *Already* Lost the Trade War. Meantime, the U.S. Might Sanction China’s Largest Oil Company
  • 7 minutes Saudi and UAE pressure to get US support for Oil quotas is reportedly on..
  • 11 minutes China devalues currency to lower prices to address new tariffs. But doesn't help. Here is why. . . .
  • 15 minutes What is your current outlook as a day trader for WTI
  • 14 hours In The Bright Of New Administration Rules: Immigrants as Economic Contributors
  • 8 hours Will Uncle Sam Step Up and Cut Production
  • 1 day Movie Script: Epstein Guards Suspected Of Falsifying Logs
  • 9 hours Trump vs. Xi Trade Battle, Running Commentary from Conservative Tree House
  • 12 hours Continental Resource's Hamm (Trump Buddy) wants shale to cut production.Can't compete with peers. Stock will drop in half again.
  • 2 hours Domino Effect: Rashida Tlaib Rejects Israel's Offer For 'Humanitarian' Visit To West Bank
  • 1 day Significant: Boeing Delays Delivery Of Ultra-Long-Range Version Of 777X
  • 54 mins Gretta Thunbergs zero carbon voyage carbon foot print of carbon fibre manufacture
  • 5 hours NATGAS, LNG, Technology, benefits etc , cleaner global energy fuel
  • 2 days Kremlin Says WTO's Existence Would Be In Doubt If the U.S., Others Left
  • 2 days I think I might be wrong about a 2020 shakeout
  • 2 days China Continued Iran Oil Imports In July In Teeth of U.S. Sanctions
  • 2 days Strait Of Hormuz As a Breakpoint: Germany Not Taking Part In U.S. Naval Mission
Alt Text

Natural Gas Glut Is Crushing US Drillers

U.S. natural gas producers are…

Alt Text

Turning Natural Gas Into Fuel Just Became Cheaper

The current abundance of natural…

Alt Text

Gas Flaring “Running Rampant” In The Permian

Gas flaring in the Permian…

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

NatGas Prices Aren’t Going Anywhere Fast

With the recent crude oil rally that brought WTI to a five-month high, it’s only fitting to have a look at what’s happening with natural gas. By the looks of it, nothing much that would make producers happy.

U.S. natural gas is selling at historically low prices, with forecasts for the near term suggesting no significant change as production continues to grow. In its latest Short-Term Energy Outlook, the EIA forecast that natural gas output this year will average 73.7 billion cubic feet daily, up by 1.4 billion cubic feet per day from last year. The Henry Hub spot benchmark price should average $3.05 per MMBtu this year and, driven by an increase in domestic consumption, rise to $3.29 per MMBtu in 2018.

That’s not a very significant increase from a producer’s perspective, but if they continue to lower production costs, it might become significant enough to spur more exports, which would, in turn, have further positive impact on prices. But how likely is this?

According to some, such as Forbes author Jude Clemente, it’s very likely. Clemente praises the oil and gas sector for becoming as mean and lean as possible, and notes how natural gas has become the leading primary energy source for power generation in the U.S. But what about exports?

According to Clemente, exports would not lead to any significant increase in prices either. He cites a 2012 research from economic consultancy NERA, updated in 2014, which said that in all 63+ scenarios studied, U.S. LNG exports would bring in economic benefits. The higher the exports, the greater the benefits, according to the consultancy. This is, of course, a logical conclusion, but it doesn’t mean that prices won’t rise substantially if exports become lucrative enough to replace some domestic sales.

Related: The EV Boom Is Dead Without Proper Support

This, however, is unlikely to happen in the near term. Back in 2014, when NERA updated its report, the LNG market was not as oversupplied as it is now. Today’s oversupply (with even more output coming from the massive Australian offshore LNG projects) is very likely to persist, and means that U.S. producers need to bring down their costs further if they want to start exporting at a profit.

Another thing that some industry observers might have overlooked is that the current price level is already uncomfortably low even for domestic sales, as Oilprice wrote a couple of months ago. Worse than the low prices, however, was the lack of sufficiently extensive gas transportation infrastructure that would have supported higher sales.

But let’s get back to exports. It’s exports that producers are looking at to improve their sales despite growing domestic demand. At the moment, judging by prices, production is growing much faster than demand, so exports are the natural direction to take. Asia and Europe are two obvious markets, and U.S. producers are already making inroads into these. Related: What Happens If Trump Trashes The Iran Nuclear Deal?

Poland and Lithuania this year received their first shipments of American LNG, and they have signaled they will gladly continue to buy natural gas from across the ocean to break the gas chain that, for now, ties them to their historical adversary, Russia. These two markets and the other Baltic States would be willing to pay more for U.S. gas, but let’s face it, how big exactly are these markets? The simple answer is not that big.

The markets to focus on are the Asian ones. Asia is the primary driver of LNG demand growth, but again there’s a problem. Thanks to the oversupply, Asian clients are asking for lower prices, and they’re getting them.

If things stay that way, U.S. natural gas prices won’t just stay where they are—they might even fall further. This is good news for consumers, but not so good for producers, though there is always a silver lining: Perhaps production prices could go lower, too?

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage


Leave a comment
  • Bill Simpson on September 28 2017 said:
    And the Italians are finding huge amounts of gas in southern Africa. Some of that could get exported as LNG within 6 years.
    You have to wonder what is under the Sahara, and how much is in the Russian Arctic. I expect vast amounts of gas under the shallow Russian continental shelf. Ice will be the big problem for them. Horizontal drilling might allow the building of islands, and then drilling outward from them.
    I guess they already looked off Argentina. Look what Brazil found out there. And then there is the South China Sea. Who knows what is below that big area. And have they looked in the far north of Canada, and around Greenland? There could be a lot of gas yet to find. BP keeps working on ultra deep drilling technology for a reason. Who knows how deep gas might be found, and in what quantity.
  • Tom on September 28 2017 said:
    Even with production costs lower most are still losing money. They should shut down and just drill oil while burning off the ng like milk farmers dump milk.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play