The outlook for US natural gas in the US is largely dependent on three key shale formations: Maguire

Natural gas is used to fuel power plants, homes and factories in the U.S., as well as the booming LNG export industry. The supply of natural gas needed to fuel all these uses comes from a small, ever-narrower portion of America's shales patch.

The mismatch between an?increasing number of consumers and a shrinking base of supplies could lead to a structural crunch in the U.S. gas market, which would trigger periods of price volatility and supply stress.

Gas prices that are too high would hurt the U.S. economy, and could derail the efforts to make the U.S. a leader in AI and data-driven applications. Gas producers in the United States are therefore under intense pressure to ensure that supply matches demand.

SCRUTINY SHALE

According to the U.S. Energy Information Administration, shale deposits are responsible for 75% of U.S. natural gas supplies.

The growth of the biggest shale deposits slowed dramatically in the last few years, as the basins matured. This was due to reduced pressure on the deposit and increased interference with wells from congested drilling spacing.

Gas prices that continue to rise would encourage producers to increase their efforts. After more than a decade, the best gas wells are likely to have been tapped.

This means that the majority of production efforts are likely to remain concentrated on the basins which have provided the lion's portion of new U.S. gas supplies in the last decade, even if the extraction rates continue their decline.

THE BIG 3.

In terms of production, the top three shale formations are the Marcellus in Pennsylvania and Appalachia, the Haynesville in Louisiana and Texas and the Permian, in west Texas.

According to the EIA these plays will account for 74% or 22.2 trillion cubic foot of shale-gas production in the United States by 2025.

In 2016, the combined production of these same deposits amounted to around 8.5 trillion cubic foot, which means that output has increased 161% in that decade.

This?growth rate is compared to a 17% increase in other notable shale deposits and a 48.8% increase in the total U.S. Gas Supplies over that time period. It clearly shows the enormous influence these seminal deposits had on the U.S. Gas Sector.

As the old saying goes, "what goes up, must come down", and the combined growth of the 'Big 3' has dropped rapidly from its previous peaks.

Since 2022, the average annual increase in gas production has slowed down to 6%.

The annual growth rate for?total gas production in the U.S. has been around 3% since then.

Different Strokes

The Big 3 are often lumped into one group when discussing shale. However, there are important differences between them in terms of their deposit characteristics and growth limitations.

Marcellus Shale, a massive deposit in Pennsylvania, produced nearly one-third of the shale gas supplied to the United States last year. It has also consistently provided the lowest cost gas for the past decade.

Marcellus's relatively shallow shale depths and thick, consistent formations are ideal for modern gas extraction, while its proximity with large East Coast populations centers makes it profitable to distribute its gas.

Even after a decade-long continuous depletion of reserves, exploration firm Kingdom Exploration estimates that between 50 and 70% of technically recoverable natural gas is still left.

The Marcellus region is still facing major challenges to its growth. These include a lack of pipeline connections with new markets, the difficult permitting process to build new pipelines and long distances from major LNG export hubs.

Haynesville, the deposit that produced 16% of U.S. Shale Gas last year, has much closer ties to LNG exporters who are Haynesville's main customers.

Haynesville producers, however, are sensitive to market price fluctuations and reduce their activity when prices fall for long periods.

Haynesville's reserves are also estimated to be huge, but they will cost more to extract, as the easy pockets are tapped.

Permian Basin is different from Haynesville and Marcellus in that it's predominantly an oil?reserve with natural gas on the side.

Permian oil is the most important product. In 2025, the basin will produce around 6.5 millions barrels of crude oil per day. This represents around half the total U.S. crude production.

Gas is a by-product of the oil industry, so it is priced accordingly by producers in order to get buyers to buy their gas.

Permian Gas is among the most affordable available. However, limited pipeline connectivity can cause supplies to accumulate in the basin. This will further lower prices.

The tightening of rules on flaring, the burning off of excess gas, means that Permian Gas producers will need to be more disciplined with their future storage and offtake flows.

The high crude oil price also means that more oil and gas production will be expected in the Permian basin by 2026. This could have a greater and more consistent impact on the national gas markets.

Gas market watchers will be able to tell how the Big 3 basins interact with each other by the way the market develops in the future.

Increasing production in the U.S. will increase power and LNG supplies.

The idea of U.S. dominance in energy may have to be rethought if gas production from the Big 3 continues to fall.

These are the opinions of a columnist who writes for.

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(source: Reuters)