One outlet for excess supply has been the nascent U.S. liquefied natural gas export sector. Since the first cargo of the super-chilled fuel -- “freedom gas,” as the Trump administration would have it -- set sail four years ago, the country has leaped into the front ranks of global suppliers.
But even that success story appears to have stalled. China has imposed tariffs on U.S. LNG, effectively cutting off a major market. Despite last week’s phase one trade deal, in which China agreed to buy an additional $52.4 billion of U.S. energy products including LNG, it remains unclear if the tariffs will be scrapped. Meanwhile, international LNG prices have tanked, and there are questions whether the global market can take all the supply that’s available.
“We just don’t believe we can sustain reduced LNG exports later this summer,” said Clifton White, a commodity strategist for Bank of America Corp. in Houston. “That would force the market to price low enough to find incremental domestic power sector demand.”
All that pain will almost certainly be reflected in production numbers at some point. The EIA forecasts U.S. dry gas production will drop by 600 million cubic feet next year, the first annual decline since 2016, as low prices finally rein in drilling in the Appalachia. That, combined with the potential removal of tariffs, could finally provide the kind of positive catalyst U.S. producers are desperately seeking.
“Many U.S. LNG exporters likely are hoping, if not praying, that China will import more U.S. gas in the wake of the first phase trade agreement,” said Rich Redash, a gas analyst at S&P Global Platts.
In the meantime, some investors are willing to look past the current challenges. Dallas Cowboys owner Jerry Jones has been on the hunt for more U.S. gas assets. Two of the largest deals in the industry in the last year have seen foreign buyers -- Japan’s Osaka Gas Co. and Thailand’s Banpu Pcl -- swoop in to make acquisitions.
Those deals offer a bull case: Strong global gas demand, in large part from Asia, means the U.S. remains a good long-term bet. Still, Banpu doesn’t plan on drilling its new reserves in the Barnett Shale of North Texas until gas prices rise to about $3.50.
“I’m pretty confident that within five years, that will happen,” Chris Kalnin, CEO of BKV Oil & Gas Capital Partners, the investment vehicle for Banpu, said in an interview last month. “Anything before that is anyone’s guess.”
--With assistance from Kevin Crowley and Christine Buurma.
This article was provided by Bloomberg News.