As reserves deplete, U.S. natural gas costs could rise to meet LNG demand

U.S. natural gas prices could double in the next decade due to rising LNG exports and the data centre building spree, according to a new report.

As the AI boom continues apace, energy-hungry data centres will use more gas at a time when a growing portion of domestic natural gas supply is siphoned off to overseas buyers via LNG export terminals. That could drive up prices, exacerbating affordability both in the U.S., and for buyers of American LNG, according to a report from Oil Change International.

The U.S. is the largest gas producer in the world and production could continue to climb in the years ahead, but incentivizing more output will likely require higher prices as the cheapest acreage becomes increasingly exhausted.

“The U.S. gas that is cheapest to produce is being rapidly depleted,” wrote Lorne Stockman, research co-director at OCI and author of the report. “The Haynesville shale basin in Louisiana and East Texas is expected to account for nearly two-thirds of net production growth by 2035, but drilling costs there are much higher due to deeper and more complex geology.”

Those conclusions have been increasingly voiced by industry analysts. A recent analysis from Wood Mackenzie warned that the era of cheap U.S. natural gas is nearing an end.

“As the highest-quality portions of Marcellus, Permian and Haynesville are developed, remaining inventory will be less productive and more geologically complex,” WoodMac analysts wrote. “Breakeven costs have stopped falling. Technology gains in mature plays are incremental rather than transformative.”

Some gas executives agree, although they emphasize that industry-wide depletion may work to their own benefit, increasing the value of their own, superior, production assets.

EQT, one of the largest natural gas producers in the U.S., is the most prolific producer in the Appalachia region. On a recent earnings call, the company’s leadership emphasized that as the assets of their competitors depleted, prices would rise and EQT investors would be rewarded.

“When you look at the peers who have inventory versus who don’t, specifically in Southwest Appalachia, where most of this demand is showing up, we think about a third of the basin’s total supply will be challenged to hold flat, actually, by the time you get towards the end of this decade,” Jeremy Knop, chief financial officer of EQT, said on a recent earnings call.

If parts of Appalachia can’t keep production from falling, “I think you get to this inflection point, what we keep referring to as a paradigm shift that happens towards the end of this decade, where the demand and these long-term infrastructure projects come online, they will pull gas right at the time where I think you have operators like EQT who can meet the moment and grow into that,” he said.

“I think other operators there are going to struggle. I think you’re going to have to see pricing that provides a further incentive to go into zones that are less economic, so certain operators can still have the economic justification to drill.”

Depletion and higher prices may lead to an increase in interest in higher-cost regions, such as the Haynesville shale, a gas-rich region that spreads across the border between Louisiana and Texas.

Gas companies have begun drilling much deeper wells to access yet-to-be-tapped reserves, but costs are significantly higher. The region has the advantage of being close to the Gulf Coast. These sections of the Haynesville — which the industry has dubbed the “Western Haynesville” — are expected to account for a growing share of supply to feed the LNG export terminals that are multiplying on the coast.

“Producers venturing into the substantial natural gas reserves in the far-west part of the Haynesville Shale…were historically thwarted by extreme geological conditions and poor drilling economics, which quickly relegated the area to the back burner in the early years of the Shale Era,” RBN Energy, a Houston-based energy consultancy, wrote in a research note earlier this year. “Now, technological advancements and bullish market conditions are once again beckoning producers to look beyond the core areas of the Haynesville.”

Producers in this region are telling investors that the future is bright and these costly reserves can now be unlocked because of rising gas demand in the form of LNG and data centres.

“LNG, this is real and it’s real structural,” Dan Turco, the chief commercial officer of Expand Energy Corporation, said on a second quarter earnings call. Expand Energy, an entity formed out of a 2024 merger between Chesapeake Energy and Southwest Energy, is the largest producer in the country and in the Haynesville. “Really the confluence of all these demands coming together right in our backyard in Haynesville and Appalachia really sets up nice for our business.”

“We think the $3.50 to $4 range still fits. We think that’s the prices that will be required to balance the market ultimately,” added Josh Viets, the COO of Expand Energy.

The company said it expects a “structural tightening in the gas market” in the second half of 2027. By the end of the decade, the company says the U.S. will see demand rise by 19 to 24 Bcf per day, with the largest chunk (13-15 bcf/d) coming from LNG exports.

The OCI report, which draws on data from energy analytics firms, finds that by the late 2030s, U.S. gas production that only breaks even at $4 per MMBtu will account for around 20 percent of total output. But because prices are set by the incremental molecule — the price required to bring the next tranche of supply online — the costlier gas needed to meet data centre and LNG demand will drive up prices for the whole market.

For many gas producers, higher prices would be a feature, not a bug. But for U.S. consumers, and customers of U.S. LNG from around the world, higher prices could be painful.

“This connects rising dependence on gas to rising energy costs,” Stockman wrote. “U.S. consumers and those in LNG-importing countries must push policymakers to reduce dependence on fossil fuels and accelerate the transition to reliable, affordable renewable energy.”