Pipeline Pressures and Shale Realities: Can U.S. Gas Keep Up with Demand?
The natural gas market is entering a new phase, with two major drivers poised to reshape demand—LNG exports and the explosion of AI-driven data centers. While residential and commercial consumption remains relatively stable, the real action is unfolding in industrial and export markets. The question is: where will the additional supply come from?
LNG Exports Set to Surge
U.S. LNG exports are already a major force in global gas markets, and they’re on track to nearly double over the next few years. New liquefaction facilities and expansions at existing plants will increase demand by roughly 6 Bcf/d by 2027. This alone is a massive shift, and it comes at a time when U.S. natural gas inventories are already tight.
Data Centers: A New Demand Giant
Electricity demand from AI-driven data centers is another emerging factor. Unlike traditional tech-sector power needs, AI data centers require vast amounts of energy, and natural gas is expected to be the primary fuel to meet this growing load. While the recent announcement of DeepSeek’s more efficient microprocessor has raised questions about how quickly this demand will scale, history suggests that greater efficiency often leads to even greater consumption—Jevons’ paradox at work.
Where Will the Gas Come From?
Three key sources will be called upon to meet rising demand:
Permian Basin Associated Gas – The Permian continues to generate significant volumes of associated gas alongside crude oil production. However, pipeline constraints remain a challenge. Kinder Morgan’s planned Trident pipeline will add 1.5 Bcf/d of takeaway capacity by 2027, but in the near term, bottlenecks could limit how much Permian gas reaches the Gulf Coast.
Haynesville Shale – Located near existing LNG export infrastructure, the Haynesville is well-positioned to supply Gulf Coast terminals. But there’s a catch: drilling activity slowed in 2023 and 2024 due to low prices, and the play has been showing signs of maturation. Wells drilled in 2023 are recovering on average 20% less per foot of lateral drilled compared to 2019. Some operators in the play believe that higher gas prices—likely north of $5/MMBtu—are needed to drive a resurgence in drilling.
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Marcellus Shale – The Marcellus remains one of the world’s premier natural gas plays, delivering exceptional well results and maintaining a reputation for high productivity. A major development in the region in 2024 was the authorization and startup of the Mountain Valley Pipeline (MVP), a 303-mile infrastructure project capable of transporting 2 Bcf/d from West Virginia to Transco’s pipeline system in Virginia. This project is expected to alleviate some of the takeaway constraints that have historically hindered Marcellus gas from reaching key markets.
However, pipeline capacity remains a limiting factor. Despite the region's vast reserves, six of the last seven planned interstate pipeline projects to move Marcellus gas to New England and other demand centers have been canceled or delayed due to regulatory hurdles. Without further pipeline expansion, increased production in the Marcellus could be constrained, despite the strong well performance and high resource potential.
Market Signals: Prices and Drilling Response
Current spot and futures prices in the mid-$4.00/mmbtu range for Henry Hub gas are an improvement over last year’s lows but may not be enough to trigger the level of drilling required in the Haynesville and Marcellus. The rig count in both plays has been in decline, and production in key basins like the Haynesville has dropped year-over-year. If gas prices move closer to $5.00, we could see a turnaround, but for now, producers remain cautious.
The Bottom Line
The coming years will test the ability of U.S. natural gas producers to respond to rising demand. LNG exports and AI-driven power loads will require a significant production boost, but whether supply grows fast enough depends on price signals, infrastructure expansion, and producers’ willingness to reinvest. With natural gas inventories already running below the five-year average, any supply shortfalls could quickly translate into price volatility.
Sources and further reading
U.S. Energy Information Administration. Short-Term Energy Outlook, February 2025.
FXEmpire. Natural Gas News: Bullish Forecast Builds as Storage Deficits Tighten. March 4, 2025.
Hart Energy. Operators Look to the Haynesville on Forecasts for Another 30 Bcf/d in NatGas Demand. March 1, 2025.
U.S. Energy Information Administration. U.S. Natural Gas-Directed Rigs Decreased for Second Consecutive Year in 2024. March 4, 2025.
U.S. Energy Information Administration. U.S. Shale Natural Gas Production Has Declined So Far in 2024. October 24, 2024.
Richard McDonough. Spotlight on Marcellus—McDonough. Pipeline & Gas Journal, 2024.