Citigroup: The Permian will become America's largest natural gas producing region “accompanied by a flood of gas” or weaken the long-term bullish logic of gas prices

The Zhitong Finance App learned that the “heart” of the American shale revolution, the Permian Basin, is moving towards a historic turning point. According to the latest predictions from Citibank analysts, by the end of this decade, the world's most productive shale oil production area will also become the largest natural gas production base in the US, replacing the Marcellus shale area, which has been in the top position since 2012.

The rise of the Permian Basin will change the pattern of the US gas market, shifting the market to be dominated by production areas that are “not sensitive to gas prices or sensitive to oil prices.” The Permian Basin spans West Texas and southeastern New Mexico, and its natural gas mainly comes from gas associated with crude oil extraction. Unlike the Marcellus gas field, production in the Permian region was mainly determined by oil prices, and natural gas was an involuntary and sometimes unpopular by-product.

Citibank analyst Scott Gruber said that the Permian period may become the largest US gas producer as early as 2030, but the speed will depend in part on oil prices.

The cost of shale oil is soaring: pipeline capacity is urgent, and natural gas has fallen into a “negative asset”

This year, the Permian Basin experienced the extreme phenomenon of negative gas prices for four consecutive months. The reason behind it is not complicated: crude oil production continues to rise, with gas pouring into the market, yet the capacity of the outbound pipelines is already full. Some producers have been forced to shut down oil wells with high gas to oil ratios to cut losses. However, this bottleneck is easing. A number of new gas pipeline projects in Texas have recently received financing and are expected to help ease the price imbalance after completion.

Increased supply during the Permian will also change the status of other shale gas producing regions in the US. Major gas fields, such as northwestern Louisiana and Hinesville in East Texas, will be able to meet new demand without a drastic expansion in production in the future, as the Permian will fill the gap.

More importantly, as a large number of US liquefied natural gas (LNG) export terminals are put into operation one after another, and artificial intelligence data centers bring massive demand for electricity, the market previously generally feared that tight supply would drive up gas prices. However, Citi believes that a continued increase in production during the Permian will effectively cushion this pressure, thereby “weakening the long-term bullish logic of natural gas prices.”