Big Oil’s Stake in Natural Gas Industry

Big Oil has staked quite a claim in the natural gas industry in recent years, with supermajors building their presence in that segment in anticipation of the global energy shift from more to less polluting energy sources. Now, however, this claim is backfiring.

Supermajors Suffer Dip in Q2 Earnings Due to Low Gas Prices

Bloomberg’s Rachel Adams-Heard wrote last week that the supermajors have suffered a marked dip in their second-quarter earnings because of record-low natural gas and LNG prices: the result of the classic combination between fast-growing production and demand that has yet to catch up.

Record-High Production Leads to Low Prices for U.S. Gas Producers

The pain might turn out to be particularly acute for U.S. producers. It’s no news that record-high production from the shale patch has driven prices to lows that have eaten deeply into producers’ bottom lines. One industry executive, the CEO of the largest gas producer in the country, EQT, recently called the shale boom “an unmitigated disaster for drillers and investors” and he is probably not alone in this sentiment.

LNG Projects Suffer from Low Gas Prices and Oversupply

U.S. energy companies are literally producing too much gas at a time when domestic demand is stalling and global demand is being met by a growing variety of gas exports by pipeline and tankers. LNG projects in the U.S. are also suffering the effects of low gas prices. As RBC recently forecast, this year, the natural gas market will remain oversupplied, and this oversupply will extend into 2020 as well.”

Supermajors’ Focus on LNG as a Growth Path

Speaking of LNG, it’s a favorite growth path for the supermajors. Two news stories from the last couple of days illustrate its significance for Big Oil’s long-term plans to become Big Gas.

Asia’s Strong but Limited Gas Demand, Led by China

Price woes aside, there is also the problem of demand. In Europe, it is relatively strong but with little growth potential as the EU continues to advance its renewable energy agenda. Analysts are unanimous that Asia will continue to drive gas demand just as it does oil demand–and in Asia, China will spearhead the drive.

U.S. Natural Gas Producers Face More Trouble Ahead

China is expected to become the world’s top LNG importer within the next five years, just as the U.S. becomes the largest exporter by 2024, with annual exports of over 100 billion cubic meters in that year. This could be a match made in LNG heaven as long as trade tensions calm down. As the prospects of this happening remain remote, it seems there is more trouble on the way for U.S. natural gas producers, including the supermajors with huge acreage in the shale patch.

Source: https://oilprice.com/Energy/Natural-Gas/Is-Big-Oils-Natural-Gas-Bet-Turning-Sour.html