The President Wants More LNG Exports and Lower Energy Prices. It’s Going to Be Tricky

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The U.S. is set to roughly double exports of natural gas in the next five years. Prices and volatility are poised to rise, too.

With the Trump administration’s support, developers are forging ahead with plans to build a flurry of new terminals that liquefy and ship natural gas. President Trump has made LNG exports a cornerstone of his trade policies by tying deals to commitments to buy more U.S. energy.

The administration is calling on drillers not only to fuel these new facilities on top of existing plants, but also to help electrify the reshoring of industries, as well as to power giant data centers.

The hitch: Major gas basins are growing old, and the country lacks the proper infrastructure to ferry molecules where they are needed. The upshot is that American consumers and industries are likely to see higher natural-gas prices and more volatility in the coming years, analysts and executives say. That could be an issue for Trump, who has promised to cut energy prices in half.

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Until now, an ever-growing supply of natural gas unleashed by the shale boom has more than absorbed domestic and foreign demand. Prices in the past decade—which saw the U.S. become the world’s top LNG exporter—averaged about $3 per million British thermal units.

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The bounty has been a boon for consumers, petrochemical makers and other industries. Now, a slew of LNG terminals are under construction and set to siphon prodigious amounts of natural gas.

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Although the U.S. has plenty of cheap natural-gas reserves, the enormous fields of the Northeast lack pipelines to ferry more molecules south. The Permian Basin produces huge amounts of natural gas from oil wells, but companies there are perennially short on pipes to send the byproduct to markets.

As a result, LNG terminals have largely relied on the Haynesville Shale, a deep, high-pressured rock formation that spans East Texas and Louisiana, for their fuel.

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But the Haynesville has been active since 2008, and companies there have exhausted most of their sweet spots.

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In recent months, energy executives have said the basin needs to see natural-gas prices increase to about $5 per million British thermal units to encourage producers to venture into less productive, more expensive areas. Prices currently hover around $3.

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Haynesville companies are being more timorous than before because they need to hit their returns on investment, lest they lose hard-won investors. Businesses for years overproduced and drilled themselves into bankruptcy; investors have since pressured them to rein in spending and return cash to shareholders via buybacks and dividends.

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“If you have scarcity of resources, [and] you can’t make it work any better, either financially or operationally, you need to wait for higher prices,” said Tom Loughrey, president of analytics firm FLOW Partners.

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Some natural-gas bosses worry that the export frenzy is going to collide with the industry’s disciplined approach and that prices will jump as a result.

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Some natural-gas executives point out that volatility could cut both ways, which makes them wary of making hasty decisions. They worry that a potential glut of global LNG starting in two years could leave U.S. plants underused and molecules stranded at home, which would tank prices. Another unknown is the impact of lower oil prices on Permian crude production, and, by extension, the natural-gas output there.

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