Cheap no more: How rising demand is reshaping US natural gas, with Artem Abramov and Jai Singh

[00:00 – 04:00] This is Let's Talk Energy, your go-to podcast for smart energy insights. I'm your host, Noah Brener, and each week, we're bringing you an inside look at the dynamics shaping global energy markets through in-depth conversations with our own Rystad energy experts as well as some special guests. The US natural gas market is at a turning point. For more than a decade, US consumers have enjoyed seemingly limitless volumes of lowcost gas from the country's shale plays. But now, rising demand from a combination of LG exports, the buildout of data centers, and general electrification of the economy are set to test the ability of the US shale sector to cheaply ramp up production. So, what is the outlook for US natural gas supply and demand and prices? And how are data centers and a wave of LG export projects challenging that view? Can the US rely on its massive shale reserves to meet surging demand and keep prices in check? And finally, what's at stake for the array of companies that are producing, shipping, and eventually burning that LNG and for US consumers that expect energy dominance to lead to lower bills. To help us understand these burning questions, I'm joined today from Oslo by Artim Aramoff, Restad Energy's deputy head of analysis who oversees our global research team. Artim, welcome back to the program. Thank you for having me back, Noah. It's great to have you back. And from Houston, we have Jay Singh, who leads our oil and gas research team in the US. Jay, welcome. Thanks for having me. Well, gentlemen, let's talk energy. I want to set the stage here before we get too far into the details and just what is I guess our outlook for US natural gas supply and demand balances and and prices. Jay, let's start with you. Today uh we have a a weak market. Uh you have Henry Hub uh kind of in I believe the front month is now below uh $3 as of this taping. uh but that really is kind of masking a uh structural um increase in gas prices in the US that we anticipate in the future. Now of course uh weather is always going to be a determinant of price in the short run. uh but I think as we look at the growth in demand and the constraints on lowcost supply uh we uh are inevitably led towards a structurally higher uh Henry hub price into the future and the future is uh the the next uh decade that's uh that's really how we're seeing the market and uh and frankly it's now emerged as something of a consensus that uh we are headed towards a much tighter uh US gas market after seemingly decades of uh very low prices enjoyed by customers uh and and and uh consumers in the US. Has that outlook changed over the last uh I don't know 6 months or so? Um are we starting to see uh some of these factors that we're going to talk about in more detail later on the program? The big change um fundamentally has been the the number of approvals or as we say FIDs in the LNG export uh market in the US uh in particular uh essentially since uh President Trump's second inauguration. um lots of factors to discuss but the long story short is you know seven projects in the US Gulf uh took FID last year if I've I've gotten my count right that added quite a lot of um gas demand to the Gulf Coast uh in the latter half of this decade that combined with the the rapid buildout of gas fire generation to support data centers um meaning AI um those those things over the last 6 months have really catalyzed but they have been um kind of key issues for years. [04:00 – 08:00] Artim, I'd like to come with to you on supply. Um what is the outlook for new US supply? Uh you know demand rising isn't necessarily a problem in itself if the supply is there to meet it at a a reasonable cost but what's the outlook for supply and and at what cost do those incremental volumes come on? It will be fair to say that there is a lot of gas that is theoretically accessible in the country and we are yet to see uh maybe the full potential of some of these high cost gas reservoirs in many different basins. Uh and you know we've just never had we've never had high enough gas prices for sufficiently long period of time. Uh not since you know 2009. Uh so it's it's very difficult actually to quantify uh if we ever get to this price environment which Jay was just talking about few years down the road to structurally high gas prices could be five could be $6 per BTU Henry Hub uh how much additional activity we will actually get in some of these tier 2 tier three gas basin. So that is maybe the biggest blackbox and maybe the main uh source of um uh uncertainty uh in a market projections uh is how quickly uh tier 2 gas basins will respond if we get to this structurally high gas price environment. At the same time, if I just quickly go uh for a couple of core gas producing areas today, northeast Appalachian basin, very stable uh production base around 35 BCF a day, pretty much hard ceiling in terms of takeaway capacity constraints. So, it's hard to grow there unless you get some additional uh regional demand sources. But at the same time there is full consensus that uh premium inventory uh which is still accessible you know with even two door gas prices is very very deep. We are talking about decades of drilling at the current pace. Then you have Hanesville uh which has seen very significant activity uptick lately. uh so Hanesville will really be a critical resource in the next 5 to 7 years uh to satisfy uh the incremental demand from new LG capacity and then we have uh associated gas in the perian which is also very very important. There are very serious uh takeaway capacity bottlenecks uh in West Texas at the moment, but around five BCF a day of new capacity is being added uh in the next 15 months and I think we'll all be surprised by how quickly uh this capacity is utilized. So a lot of growth is coming shortterm. The growth that is coming in shortterm I I think this it can still be achieved with fairly low gas prices we seeing today. But as you move towards the end of the decade and 2030s, then I I I fully agree uh with what Jay said, then we start talking about uh the need for structurally higher gas prices. We have um Henry Hub averaging uh a little over $4 uh for annual average 2025 and and just slightly higher for for next year. Speaking to Artum's point there, which is uh there's no need to move very far up the cost curve uh in the in the very short term. Um, I think structurally the the US has been 2.5 to three and a half dollars. We're transitioning to a three and a half to four and a half environment. Are we starting to see signs though of this kind of structural increase? I mean, you're talking really maybe a couple of years out that we're starting to see some of those bigger increases, but I mean, are there signs, I guess, today of a gas market that maybe isn't quite as doesn't have quite as much cushion uh as it might have say a couple of years ago? The big uh clue was uh around um I believe it was much of 24 25 um the outages uh at Freeport would really swing um price and so as we started to get more LG FIDs it was it was clear that you know LNG is is not independent uh it's no longer just a a sync for very lowcost gas that you can't really place in the domestic market. It is actually a big player at least in the short term. [08:00 – 12:00] Um we we've seen that you know in actual um empirical data you know when the correlation so we if we take that forward and we add lots of free ports equivalents around the Gulf we can make that inference. The other big aspect of this and this is connected to perhaps what Arta might touch on is um the Japanese buyers uh have spent um over $10 billion in the last 12 months uh acquiring Hannesville assets. Um so I think they've seen the writing on the wall. I guess this is um perhaps um you know them reading into the situation the same way we are. Maybe we're both wrong, but they they at least they perceive the u the structurally higher Henry hub market as a group of companies uh that serve a country that is net short of course um on on gas. It really depends on what you use as a as a reference point. uh because we we are coming into the current market environment from fairly serious downturn which we had in 2024 uh and early 2025 with very low gas prices accelerated co to gas switching in the domestic power sector uh free port outages which J mentioned uh and now we're kind of back to 3.5 for PBU price environment which which is sore from time to time historically as well so like it's not uh yet proven that we really we we're getting to this structurally high price environment but uh definitely there are a lot of expectations you know uh uh first of all capacity possibly doubling in next 5 years a lot of vids data centers they come on top I guess it remains to be seen how much additional demand data centers really generate in the country we think there will be quite many delays and project cancellations but clearly uh some of these structural shift on the demand side they're happening and the outlook for the demand today is significantly more optimistic than it was year or two ago. So that that is maybe the thing that changed the most. How firm is our conviction in the growth trajectory of of LNG or or are there downside risks there? There's projects representing roughly 13 BCF approaching 14 BCF per day of feed gas demand and we are very confident in in the post FID uh wedge which you know looks like a mountain right now on our charts once you have arranged the financing you have uh secured the contracts uh it takes quite a lot to the contracts for offtake and of course for construction so forth so if you have a turnkey with beel you've you know, your all of your contractors lined up. Um, it takes a lot to cancel a post FID project. So, we're very confident uh in the fact that those will get built. uh and in fact you know we put out a note recently and I think we can put it in the show notes because it's it's not behind the payw wall on uh precisely why we are pretty confident in the utilization the high utilization of those LG projects which is essentially that when you as an offtaker of LG sign a um a tolling agreement which means you're going to pay for the right to use the capacity regardless of whether or not you use it. um you generally uh shift to uh marginal cost economics. So if you can take a cargo from the United States and take it to Europe and uh realize a more than $1 U price differential, you're going to move the cargo because otherwise you would just be paying to do nothing. Um which u I think we saw during COVID, but I think those were pretty extraordinary times and then uh utilization came right back. So we can think of liftings into Europe as essentially safe as long as there's a $1 spread and then to Asia somewhere between a dollar and $2 spread um given the higher cost to uh transport regen outlook for for data centers u where we've got a massive queue of potential projects um and a bit more uncertainty as to what actually makes it through. Is that the right way to think about that? data centers is an interesting one um because everyone knows and and you know there's very few people who will you know claim that all of these um all of these projects in our spreadsheets and lists are going to get built. I think that that is it's almost understood that developers uh not all of them but developers are putting in six projects and hoping for maybe two or three to come through. uh this is not an easy um permitting process uh depending on where you are and so not all these data centers are going to get built um and it's acknowledged Nvidia and others basically charted the path forward on on efficiency energy efficiency of these chips so that's baked in to some extent nobody knows exactly what that curve is going to look like I mean the chips have been getting much more energy efficient um already Um, so we'll see how how how that evolves. Um, we're also not even saying that all these data centers are going to be gas fired. It just happens to be the fastest, most reliable tool in the toolbox. Even after applying all that risking, um, you still get to a very meaningful number. And I think we've scouted somewhere between three and four BCF per day in gas sales agreements with behind the meter meaning not not grid connected data centers uh in the US. Um and so you can think of the usual suspects there Pennsylvania Ohio um Texas we're all risking these down. I think just uses a roughly 50% risking but even when you do that you still get to a very large number relative to where we are today. So we have a we have 110 uh BCF per day market roughly um and that includes um LG and pipe exports. Power alone is going to add uh 10 BCF of demand and that's that's just um uh in front of the meter data centers included. Uh and then if you're adding the 13 BCF I was talking about uh earlier for uh LNG then you're getting into some very serious numbers as far as how far up the cost curve we have to go. there is a need to risk uh outlook and develop our communication quite massively and uh for example 50% risk in which air is using in our view it's not uh sufficient actually we use much uh more aggressive risk factors for example for PJM I think uh if you look at our 2030 demand from data centers it's approximately one quarter of what developers actually planning if you just stack all the projects and you know among these 75% which we are pushing to the right half is being pushed due to our expectation of various greet bottlenecks and delays and half another half is actually being pushed because we don't think these data centers will actually be needed due to the efficiency you know chips are becoming more efficient uh and ultimately the demand uh energy demand for AI and large language models being a little bit more conservative uh than what developers expect today. So it is a significant driver uh but also uh I think we'll all soon realize uh that it it is coming in a very paced manner compared to exponential growth outlook many developers had initially. I want to pivot back to supply. I mean you highlighted the potential for some of the major existing plays. You talked about Hanesville, you talked about the Marcellis, um mentioned the Perian as well to ramp up production in the near term and and at pretty reasonable prices. Um what about new plays as we start to look further out? Do does the US need new plays to to meet demand? Um and what does the cost curve look like for supply from those those areas? If we use a reasonable gas price assumptions and when I say reasonable I mean anything of $5 and less uh that is something that you could you know actually get in a sustained manner in the foreseeable future. Uh then there are not so many place with proven commercial potential and fairly deep sizable inventory uh based on current technologies and well results we have seen so far. [16:00 – 20:00] one of the place which should definitely be mentioned is the dry gas window of Eagle for uh South Texas and you know historically there was a lot of activity there. Uh but the area which we are talking about these days is a fairly special deep area uh quite far south in the web county Texas. It's Dorado play. So you have your G resources, you have caterus energy, couple of other operators active there and that is definitely the area which I think surprised most market analysts uh on on the speed of production growth uh in the last two to three years. Uh but when I actually looked when I looked at the data for 2025, I didn't believe uh what I saw. uh these growth numbers were much more impressive compared to what we projected just 12 uh 18 months ago. So it was easy to miss that uh not not directionally but the magnitude uh was quite uh exceptional and that is one of these areas which works even with current gas prices. So you know it can actually compete with core areas of Hanesville and some parts of Appalachia on on bio economics. Uh but it's quite uh limited uh you know you have just three to four significant operators there. Yes they can add one maybe two BCF a day of gas uh in the next 5 years but that's pretty much it. And then you have areas like western Hesville extremely deep extremely uh expensive wealth uh you know you are talking about numbers north of 40 million USD uh with current you know pad design and technologies uh but also very productive uh and uh in these areas like western Hainsville uh I think there is still a lot of upside uh there will be a very significant learning curve so costs will come down if operators remain been uh committed uh to to the development of this area uh and uh the upset could be much more sizable than what you get from Dorado and you have I would say five to six of such place around the country which we're currently monitoring actively uh normally it's nothing new in terms of uh geographic areas which are being where activity is happening but operators are testing modern completion techniques applying best practices this um to various formations or landing zones which didn't work uh when they were tested originally. So a lot of such activities happening in Anodarco basin in Oklahoma in the Rockies region uh in Uinta basin for example there are quite interesting projects which we monitor and even if we go back to South Texas it's not only the other play uh there are quite many shallower intervals other than ego for and Austin chak uh which are just less economic than ego for core ego for chuck was and they're being tested now so some activities happening And uh if you look at 5 to 10 year forecast horizon with five door open environment uh they can definitely add another uh 5 to 6 BCF a day to gas supply projections. We've seen business models shift quite a bit in the shale industry over the past say 5 years or more um towards capital discipline not necessarily spending money every time that that prices jump or or growing for growth sake alone. So uh does capital discipline I mean uh do we see companies I guess actually increasing the drilling budgets that are necessary to to tap these additional volumes? How does strategy fit into to the supply outlook? I mentioned um uh the Japanese buyers Jer Mitsubishi I guess uh most significantly recently with the acquisition of Athon the largest Hannesville um operator. Uh there's lots of capital looking at the US. However, um the number of opportunities is inherently smaller. I mean, you've seen Chesapeake, Southwestern, you've seen lots of consolidation in the kind of dry gas universe uh of players. Um but there's significant capital looking at um you know, just leasing acreage and and kind of exploring shales. I mean, I think it's significant that Mitsui entered the western Hannesville, which um should be noted it's it's more like Houston than it is like northern Louisiana. So, it's kind of 100 milesish north of of Houston. So, uh they they entered the western Hannesville um by acquiring kind of undeveloped acreage and they kind of explored it uh themselves. It's kind of like classified as an exploration project. So I I think that we can expect to see more uh risk capital being deployed um where it comes from. It may not be from the traditional sources of the past. Um it could be in many cases um from kind of non-Japanese international players. Um we've had a lot of conversations on the advisory side with you know companies from all over the world. So, um it's um it's going to have some dynamism to it so long as the story stays intact, which you know, it's very hard to imagine the demand side at least um changing dramatically in the ne in the next uh two years. [20:00 – 24:00] M&A is going to be a big part of the story. Um how many opportunities are available in terms of public companies is is quite small. I mean, I think that that's how Mitsubishi arrives at something as large as AON. um because you could see Tokyo Gas and the others kind of did smaller deals when it was available to them. Um and they may add to their positions. Uh so obviously for it's complicated for for China to buy anything in the US. I think there was a that era is gone now where they would buy upstream assets in in the US. So it really does come down to the Japanese and the Koreans and some other uh key buyers. I don't think the Europeans are particularly um interested in in acquiring upstream assets in the US. Uh but they are very interested in LG to continue to to be reliable for Europe as it was after the Ukraine um war 22. The vast majority of uh recent deals uh which we saw they resulted in positive revisions for supply outlook in the country. uh largely because the sellers they were either down prioritizing uh assets in their capital allocation or they were not interested in growing them for various reasons. Uh whereas the buyer is very likely to be committed uh to uh to the growth program on these assets. uh you know Jay mentioned a couple of gas specific deals in Hanesville and Western Hesville but uh there were other examples you know even if you look at recent devesture of Anadarko as by Ontie uh Newfield Explorations portfolio they acquired in 2019 and now just sold it piece by piece. um the new buyer is far more likely to prioritize uh scoop and stack and a darkco area in a dedicated manner whereas in case of abintif it really struggled to compete for capital allocation against their perian and against their monty assets. Same is true for recent devesture of um uh South Texas asset by SM Energy because they they they sold uh their uh dry gas shallow dry gas assets in web county to Caturus Energy. I think we already briefly mentioned this company earlier today and again in case of Curus it fits very nicely into their uh you know organic growth program fits very nicely into their infrastructure. whereas in case of SAM the previous owner uh it was really far down on the priority list for for the capital allocation. I want to talk a little bit about uh energy prices and gas prices um you know here in the US for consumers and the impact to consumers. Um I mean if we do see as we mentioned gas prices still very cheap um but they are going up from a percentage perspective quite significantly perhaps um do we see this as as you know an election issue? I mean, is is there a chance that the US government in some ways, you know, limits approvals, limits or even the flow of of gas to these projects if we see voters essentially revolt if if we see this become a major election issue whether or not to export U gas. Uh, and the debate really has been raging for some time and it it tends to go away for periods of time. Um I have a feeling that it's coming back in a in a bigger way because you can already see in the in the kind of Silicon Valley conversations, you know, why are we why would we export this um critical source of national strength? Um and then of course utility bills, power prices is all entering the conversation much more prominently. The time of where you consumers didn't really think a lot about their power bill. um uh at least you know for those who are u kind of fortunate enough to not have to think about it there was a much bigger uh percentage of the US population that now that has to think about um the the the price of their particularly the power bills. I think the gas bills tend not to get uh noticed that as much. Maybe I have a Houston bias there where it's it's just it doesn't move the the needle as much as the power bill, but I imagine the Northeast it's going to be uh significant. So, uh I think it's going to be entering the discussion. And as far as what the US government would do about it, it's a non-zero chance that someday, I don't think anytime soon, there would be some policy interventions. Um and this is more along the lines of uh you know a tail event in later this decade where prices simply are too high um and they're low enough for international bio for LG to keep clearing which is kind of what we think will will happen. The most likely scenario still is that uh everything Artum was talking about with respect to we really haven't tested the high higher part of the cost curve. Um it could keep a lid on gas prices under six say and I think consumers essentially that's not a crisis for us consumers. On the power side, it's a whole we could be here all day as far as rate cases and all the things that have to be done with the hyperscalers and you know bring your own power and all these kind of challenges of keeping power prices down. But on the gas side, um I I it's non zero, but I it seems that there is enough supply at a at a reasonable price, meaning kind of sub six or sub five if for a meaningful period of time that the the gas price itself is unlikely to be, you know, a gamecher for US politics. Artum, what's the view from Europe? I mean, we've seen countries sign up for record volumes of US LNG. Are those volumes I guess is there any concern that those volumes could could potentially be interrupted by future US policy? The continent moved from uh very high dependency level on Russian gas uh prior to the war in Ukraine uh to the situation when it's overly dependent on uh the US LNG uh and also Norwegian pipeline gas. Uh so now we we are having this competition actually between uh Norway and um the USNG. The reason why I call this a competition is because the demand in Europe is about to start declining structurally. There was a fairly significant loss of consumption from industry in 2022. And since 2022 the demand has been recovering gradually, but it never really returned to pre-war levels. uh but some uh energy transition drivers uh which I'm not even sure energy transition is the right word anymore uh because it's not driven so much uh by the climate agenda it driven more by energy security considerations in Europe uh but Europe remains committed you know to integration of renewable energy sources in its power mix at a very high rate uh and that will gradually start having impact on the topline natural gas consumption. So from late 20s uh we are really talking about the start of structural decline in gas consumption in Europe and in the declining market it will be actually quite difficult for both Norway and the USG to maintain the current size of exports. So that would be very interesting situation to monitor and there are different considerations. uh you know from environmental angle Norwegian pipeline gas is definitely preferred like if you look at the life cycle emissions uh it has nothing to do you know with how much is emitted uh in oil and gas fields at the upstream level it is just about energy intensity of liquification transportation and regification process which adds quite a lot to the life cycle uh emissions of any LG in the world not only the American one um and also From the cost angle, uh, of course, Norway is quite competitive and, uh, the pipeline gas, uh, as a pipeline as a transportation method, uh, typically, you know, is more economic. Let me put it this way. Uh, but Norway uh, uh, due to the decisions made in the last 10 years is unlikely to maintain gas production at the current levels. [32:00 – 36:00] So we're actually looking at several major projects in Norway which are about to enter the decline phase like uh the giant troll field would be the best example uh and the volume of Norwegian expert might decline structurally. So effectively what all this means is that the opportunity size for the American dream uh will will will remain very very significant. So Europe will don't have too many options essentially at the moment. uh other than remain dependent on American LNG and that is kind of the key maybe foundation of our outlook and belief uh that uh this market will you know uh be dominated by the US in 2030s and 2040s. Any parting thoughts? Is there anything that we haven't touched on in the conversation that um that you'd like to make sure that we cover? I also would like us to make some predictions for uh the next 6 to 12 months. uh because honestly uh the supply growth which we're getting from the US uh in 2026 this year is still a little bit of the black box to the market uh because now we at 110 BCF a day but where will we be in early 2027? Uh I think uh each of us can make a small prediction and then we could uh see who was right. Uh I for example I'm very bullish on the US supply and I think uh six BCF a day that's what we are getting uh in the next 12 months with a large chunk of that coming from the Perian uh Hanesville and Dorado play uh in South Texas. So 116 BCF a day that would be my number for the next February. We're on the same team as far as forecasting. So, it would be it would be odd for me to have a different number than than you. I think it is a nonzero chance that we end up in a high case kind of in the in the mid to high fours um next year for for the strip. Um we were already kind of briefly there or above uh during the freeze. So, um, uh, I think we depending on Golden Pass, which is, um, which was part of the reason we came into 2026 so strong in terms of price expectations, uh, because we we thought Golden Pass, uh, was going to be starting up in January or February, I believe, and it the the the ramp up of, um, of the project of of the facility is slower than anticipated, but then by the end of the year, it almost certainly will be online and you know depending on the the the data center buildout uh the gas fired buildout is going to just be a slow grind all the way through this decade because we I guess one thing we didn't discuss was the the uh supply chain on gas fired power plants and essentially they're building as fast as they can um given manufacturing constraints there on the on the turbines um so yeah I this is my way of saying early next year we can see ourselves in a 4 and a half um or or closer to $5 Henry hub um if if uh if this kind of high case materializes. So we've got our time at 116 BCF a day for uh for US supply coming into next year. Jay, you're at 4 and a half uh potentially upwards of four and a half on Henry Hub. I'll take I'm I'm going in between. We've got potentially geopolitically elevated oil price. Uh maybe that incentivizes a little bit of drilling if we see a strong gas price. Um you know, maybe we see uh perhaps even some private companies try to take quick advantage. I I don't know. Um RTM, your 116 is is as you say, optimistic. I'll come in um I'll say there's some hiccups. I'll come in at uh 1145 despite uh despite some of the elevated pricing. And I'm going to base that on maybe we see geo geopolitical premium come out of oil a bit. Um perhaps some some you know breakthroughs or at least some some hurry up and wait uh around some of these conflicts and uh and I'll just say hiccups on the on the operation side. Um limit it just a little bit. That that's where I'll come down. So you you go with consensus view. I'll take consensus. All right. Well Jay Artim, thank you so much uh for joining us. This has been a great conversation. Thank you. Thank you, Noah.