AI will require over 17 bfc/d of natural gas-fired power globally, page-4

According to the latest data, February production remained nearly 1 bcf/d lower than December – the sharpest non-weather-related slowdown outside of COVID-19 since 2008. Instead of lacking LNG infrastructure, the US is now the world’s largest gas exporter, with new terminal capacity set to surge over the next twelve months. More recently, analysts predict the promise of data center proliferation, driven by the rapid adoption of large language models, will usher in the most significant increase in domestic gas demand in US history.

The US is set to shift from a prolonged period of acute oversupply to a structural deficit of historic proportions.

Although inventories remain high, our models predict they will draw to dangerous levels much sooner than anyone believes possible. Given this backdrop, it is unfathomable to us that US natural gas should trade at a record discount to its energy-equivalent price, even considering two consecutive mild winters. Investors should take note. In many respects, the current natural gas market represents the perfect storm: dry gas production is faltering just as demand is set to surge. We have warned for several years that shale growth would slow. Our neural network models indicated that, although immense, the shale basins were not infinite.

The Barnett and Fayetteville were the first two shale gas basins developed in the middle 2000s. Each field ramped up sharply before unexpectedly plateauing and declining by over 50%. We concluded that both fields peaked precisely once half their recoverable reserves had been produced, just as Hubbert’s theories predicted.

By applying these same principles to the Marcellus, Haynesville, and Permian (collectively 75% of total shale gas production ) we warned growth would soon begin to slow before production rolled over entirely in 2025. It appears we were too conservative; US gas supply has likely peaked already.

As we mentioned, the US produced nearly 1 bcf/d less dry gas in February than the peak in December. Preliminary data suggests production declines will accelerate. The U.S. Energy Information Administration (EIA) expects June shale production to fall by another 2bcf/d compared with February. Our internal models confirm the persistent declines. If the expectations are accurate (and we believe they are), total US dry gas production likely will fall by over 2 bcf/d between December 2023 and June 2024 – the sharpest six-month decline outside of COVID-19 since our data began. Although it garnered no attention, in the latest Short-Term Energy Outlook (STEO), the EIA predicted that full-year 2024 dry gas production would fall by 1% compared with 2023. For this to happen, production must drop by an incredible 7 bcf/d between February and December 2024, breaking below 100 bcf/d for the first time since June 2022.

The EIA expects US dry gas production to rebound sharply, making a new all-time high of 105 bcf/d in 2025, but we believe this prediction is too optimistic. The shales would have to arrest their declines and add nearly 1 bcf/d each month next year. The EIA expects Henry Hub gas will average $3.10 per mcf in 2025, too low to elicit the huge drilling rebound needed to bring about this change. Between June 2021 and January 2023, gas averaged $5.67 per mcf, never once dropping below $3.10 and yet production growth only averaged 380 mmcf/d per month. Production grew at less than half the rate implied in the EIA’s 2025 projections despite a gas price that averaged 82% higher.