Full Tank
The US is nowhere near peak natural gas production.
“Pessimism is as American as apple pie—frozen apple pie with a slice of processed cheese.”—George Will
In economics, a network effect occurs when the value of a product increases as more people adopt it. This phenomenon is commonly observed in the growth of social media platforms, marketplaces, ridesharing services, and communication tools. If enough Uber drivers and prospective passengers congregate in places like airports and city centers, the convenient app generates utility for all involved. In rural areas, it becomes just another unused button on a crowded phone. The venture capital world is fixated on pushing startups towards such tipping points and the associated rocket-ship growth.
The development of critical physical infrastructure often exhibits network effects, though typically at a slower pace than their digital counterparts. The appeal of owning an automobile increased as the number of roads, highways, and service stations expanded. Electricity grids become more profitable to operate as the customer base grows, while fixed costs per user decrease with each additional hookup. The symbiotic relationship between producer and consumer dictates both the pace and durability of growth in such systems.
For most of the first century after oil was discovered, natural gas was largely considered a dangerous nuisance. The technology to safely harvest and handle gases was far less advanced than it is today, particularly for highly flammable ones. When encountered in the field, natural gas was either flared or vented directly into the atmosphere, leaving only the prized liquid hydrocarbons behind to be transported to market.
Fast forward to the present, and natural gas now accounts for 23% of the world’s primary energy consumption, compared to 26% for coal and 31% for oil. A vast network of pipelines crisscrosses most developed nations, while the advent of liquefied natural gas (LNG) technology has created a truly global market for the fuel. In 2023, approximately 13.5% of all natural gas produced was transported via LNG cargo ships, a figure set to rise significantly in the coming years. With each new pipeline laid, home connected, or LNG terminal constructed, the applicability of the fuel’s inherent advantages expands, and there is a real possibility that natural gas could provide the plurality of the world’s energy needs within a few decades.
Just as the utility of natural gas is reaching escape velocity, a small but vocal group of pessimists is sounding the alarm on declining US production. Concerns of this nature are not new—many of these same voices previously doubted that shale gas would ever be economically viable. Forbes published a typical expression of looming scarcity in late 2024:
“For years, experts have debated how long this shale surge could last. Now, the Energy Information Administration (EIA) has offered a clue: U.S. shale gas production, which accounts for 79% of all dry gas output, dropped slightly in the first nine months of 2024 compared to the previous year. Should this pattern hold, 2024 could mark the first recorded decline in U.S. shale gas production since the EIA began tracking it in 2000.
Total U.S. shale output dropped by 1% to 81.2 billion cubic feet per day (Bcf/d) from January to September 2024, while other dry gas production increased by 6%, averaging 103.3 Bcf/d overall. The decrease is primarily due to declines in the Haynesville (down 12%) and Utica (down 10%) plays, with only the Permian region showing growth (up 10%).”
We put pen to paper today to lay waste to such monitions. The US has both the capacity and the resource base to produce far more natural gas than it does today. If market conditions evolve as we expect, it will almost certainly continue on its current trajectory for decades to come. Let’s find out why.