Boosting gas output while keeping prices low a tough task for Trump

Gavin Maguire

It may take more than a Sharpie pen and White House cheerleading to change natural gas output levels in the United States.

President Donald Trump's sweeping measures aimed at maximising U.S. oil and gas production mark a U-turn in energy policy from President Joe Biden's term, and make it clear that Mr. Trump expects domestic fossil fuel production to rapidly rise.

But even with faster permitting for exploration and sales, the new Trump administration may struggle to boost U.S. gas output without help from local and international prices.

That's because historically weak gas prices for electricity generation, not restrictive former policies, were the main factor in suppressing U.S. gas production in 2024.

If gas prices trend steadily higher in 2025, Mr. Trump's hopes for higher gas output will materialise and will help propel U.S. energy product exports to new heights.

But higher gas prices would also go directly against Mr. Trump's aims to lower energy costs, which were a major factor behind his successful election.

That presents a potential conundrum for Mr. Trump's energy advisers who must now somehow motivate higher gas output without triggering higher energy prices for consumers.

Historic drop

U.S. gas output from shale and tight gas well--which account for over 75% of total U.S. natural gas supplies--fell in 2024 for the first time in over a decade as average prices for gas used in electricity generation dropped to historic lows.

The power sector is by far the largest gas consumer in the U.S., and accounted for around 43% of total gas use in 2024, according to the U.S. Energy Information Administration (EIA).

Average prices received by gas producers from power firms were $2.77 per thousand cubic feet (Mcf) in January to October 2024, EIA data shows.

That compares to an annual average of $4.13 per Mcf from the same user base from 2013 through 2023, and means that some gas suppliers received 33% less for their gas in 2024 than they received over the previous decade from their top customer.

For some high-cost gas producers, 2024's average prices were the lowest received this century aside from 2020 - when COVID-19 stifled total energy use sparking output cuts and cost reduction measures at several production sites.

Production trends

Going forward, all U.S. gas producers will be buoyed by the broad support for their sector shown by the new administration, but the shale sector will have the ultimate say over the scale of any output changes.

Between 2013 and 2023, U.S. shale gas output jumped by 191% to roughly 35 trillion cubic feet.

That explosive growth pace helped lift total U.S. gas supplies from all formations by 54% from 2013 to 2023, to 45.5 trillion cubic feet, according to EIA.

However, that blistering expansion also chewed up large portions of the most easily recoverable reserves in major U.S. shale deposits, and means the cost of extracting the remaining reserves will likely creep higher.

Further, over the same decade gas output from conventional gas wells and coalbed wells dropped by around 50%, while gas output from crude oil wells dropped by 16%.

That means that without higher selling prices for the gas they produce, few gas producers of any formation type will be able to afford to lift production without incurring additional costs that could undermine their already thin margins.

Price woes

The price pain for natural gas supplies is not just from the electricity sector, as the average prices received for LNG exports also dropped in 2024.

LNG export prices averaged $6.22 per Mcf in January to October of 2024, down 18% from 2023 and down 50% from 2022, EIA data shows.

Despite the lower average prices, U.S. LNG exports scaled a new record in 2024, expanding 1.1% on the year to just over 87 million metric tons, according to ship-tracking data from Kpler.

However, the configuration of U.S. LNG export flows in 2024 changed significantly from the prior year, and included a nearly 20% drop to top market Europe and a 30% rise to buyers in Asia.

Those swings in export volumes resulted in higher costs being incurred on voyages outside Europe, as the journey times to China and Japan are often over twice as long as to Europe.

And when combined with the lower prices received for LNG exports, those higher costs further tightened margins for gas sellers despite the overall climb in LNG export volumes.

In 2025, the Trump administration is expected to push for further growth in LNG exports to all regions, thanks in part to new expansions in LNG export capacity.

But with both Europe's and China's economies dogged by growth issues, consumer demand for LNG on the ground may remain tepid, which may keep LNG export prices subdued.

Steadily increasing electricity generation from renewables--which can produce power more cheaply than fossil fuels--may also serve to cap the prices that generation firms will be prepared to pay for natural gas.

In turn, these lower LNG and power generation prices may dissuade gas producers from increasing production, even as the Trump administration urges expansion.

(The opinions expressed here are those of the author, a market analyst for Reuters)