On the production side, U.S. shale gas is performing strongly — but a current lack of investment projects in the sector could be “economically disruptive,” according to the International Energy Agency (IEA).
“Without additional investments into American liquefied natural gas (LNG) projects, the American gas industry will have to keep gas on the ground, which would be a waste of capital, economically quite disruptive,” Laszlo Varro, chief economist at the IEA, told CNBC’s Steve Sedgwick at the GasTech conference in Barcelona on Tuesday.
U.S. natural gas is being produced at record levels thanks to the shale revolution, brought about by the extraction technique known as fracking. And the booming demand for LNG in Asian markets, China in particular, should mean massive business for U.S. gas exporters.
But Varro pointed to major bottlenecks in export capacity due to global trade tensions and a lack of sufficient investment into projects for export infrastructure.
“If there is no export infrastructure development, then a large amount of American gas will simply stay on the ground,” he said. “Because given that the domestic energy system is not going to be able to absorb that much gas domestically, if there are no export projects, then American gas prices will have to go down to a very low level to shut production down.”
The IEA’s forecasts for the energy industry assume international trade will function without disruption, and therefore sees excess U.S. gas production going to meet China’s need for natural gas.
But this week’s announcement that the White House is raising tariffs on an additional $200 billion worth of Chinese goods does not bode well for trade prospects, consequently stunting support for export infrastructure investments.
Nonetheless, Varro was optimistic that global trade would return to normal.
“Our basic assumption is that international trade of LNG will continue,” he said. “And investors very much hope that the trade policy decisions will support this.”
