U.S. natural gas production is booming. The country is pumping so much of the commodity that prices have dropped to multi-year lows after last year, soaring to over $7 per mmBtu amid the European energy crunch.
Now, U.S. benchmark gas is trading around $2 per mmBtu and likely to remain at this level for the observable future. Because of associated gas.
Just four shale basins in the United States are currently producing some 36 billion cubic feet of associated gas daily. Those are the Permian, the Eagle Ford, the Niobrara, and the Bakken. And the reason they are producing so much is that oil production is also on the rise. Because of higher prices.
"About a third of U.S. gas production is associated gas - produced from oil wells," Jacques Rousseau, a managing director at research firm ClearView Energy Partners, told Reuters earlier this month. "This production is unlikely to decline given current oil prices."
Indeed, the Energy Information Administration recently forecast that associated gas production in the country will continue rising until the middle of the century. The EIA also estimated associated gas would account for a fifth of all U.S. natural gas production between 2023 and 2050.
Now, this is great news for natural gas importers as various regulators within the U.S. itself clamp down on natural gas use, effectively stifling demand, or at least trying to.
But even before these regulators set their sights on natural gas, domestic demand was flattish and unlikely to grow by any substantial amounts unless energy transition plans fail spectacularly. Related: $35 Trillion Needed In Transitional Technologies To Limit Climate Change
This means that gas prices in the U.S. won't be going anywhere higher anytime soon. Until they do, as demand for LNG from overseas ramps up. Unlike the domestic market, international demand for natural gas remains strong and likely to become even stronger as the transition push favors gas over coal for power generation—a big target for decarbonization efforts.
As the biggest natural gas producer in the world, the United States is perfectly placed to take advantage of the opportunity this gas-favoring offers, as long as it can tackle its capacity-building problems.
Last year, all reports about U.S. LNG and its future were upbeat. The U.S. was going to overtake Qatar as the world's largest exporter. The U.S. was adding new LNG capacity at breakneck speed. Until it hit a speed bump.
Rising costs and intensifying competition are making life difficult for LNG developers and many projects currently in the pipeline may never see the light of day. This is what the Financial Times reported this month, citing industry executives as saying it had become more difficult to secure the long-term offtake commitments necessary for any LNG project.
There are already several LNG export projects under construction or close to commissioning that will boost U.S. export capacity by 70 percent by 2027, and that's quite an increase. It will make the U.S. the largest LNG exporter in the world as soon as this year.
Yet many other projects are getting delayed and may get canceled eventually because it's getting harder to secure funding for such massive facilities in countries whose governments are betting everything on the transition away from fossil fuels, including gas, despite its favorable place.
Even without these projects, assuming all the ones under construction get finalized, the United States can claim the crown of the world's biggest LNG exporter and keep it for quite a while, thanks to that cheap associated gas.
It is going to continue flowing because, with OPEC+ determined to keep control over global oil prices through supply constraints, prices are likely to remain at levels that make production growth attractive to U.S. drillers.
By Irina Slav for Oilprice.com
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