THE UNTOLD STORY OF 2025: The Looming US Natural Gas SqueezeHaving examined the broader oil picture, let's turn our focus to natural gas.
Unlike oil, the US natural gas market is setting up for a potential sharp price increase in the near future. The US gas market is a relatively isolated phenomenon. Even if the rest of the world experiences falling energy prices and a widespread economic crisis, the situation in the US could be the complete opposite. Let's break down why.
From a technical perspective, as with oil, I believe we established an absolute price floor in 2020. The COVID-19 pandemic crushed prices that were already low due to a gas glut caused by the shale revolution and soaring production.
The 2022 price spike, while sharp and emotionally driven by the war in Ukraine and the European energy crisis, failed to reach the peaks seen in international LNG prices. This was simply because the US market is not fully integrated with the global market. LNG export capacity was insufficient to pull massive volumes of US gas abroad; it remained trapped domestically.
Subsequently, prices fell back to their previous lows.
However, we now appear to be seeing the initial waves of a new cycle forming. A falling wedge or ending diagonal pattern currently developing could signal the sharp, explosive move that typically follows such a pattern.
Several fundamental factors support this thesis:
Growing LNG Exports: New LNG export projects are starting to draw more and more gas away from domestic supply.
Soaring Power Demand: Demand for electricity generation from data centers (for cryptocurrency and AI) is rising dramatically.
Stagnant Production: Gas production has plateaued and is not growing.
The End of an Era?: A recent EIA report has sparked debate about the possible end of the shale gas and oil boom in the US, suggesting prime drilling locations are dwindling.
Add an impending financial crisis and the potential for a credit crunch that the Fed may be unable to liquify this time around (a topic for a separate analysis), and you have a recipe for a perfect storm in the US market.
Another critical factor is that US drilling and extraction are highly capital-intensive. Fracking requires significant working capital (equipment, materials) and involves high operational expenditures. This is all financed with debt. For the oil sector to remain profitable, it requires sustained prices above $60 per barrel.
If oil prices fall and production declines—and we know the rig count is already dropping—the production of associated gas will also fall.
If industry financing dries up, a wave of bankruptcies will begin. Highly leveraged small operators will be forced out of business, shutting in their gas production as they go.
US prices would then skyrocket. Major players would begin to acquire struggling smaller companies, snapping up their assets and drilling rights at a discount, positioning themselves for the next cycle.
