With the shale gas revolution, investing in natural gas wells in America has become very attractive in recent years. However, governments’ interference in natural gas markets through price caps, special taxes, and strict regulations has started to reduce the profitability of gas wells. If the energy transition is to accelerate, governments must allow higher natural gas prices and better incentives for companies to invest in this sector. The outlook for natural gas supply and demand is strong in markets like China and Europe. But policy certainty is needed for investments in wells and related infrastructure.
Economics of investing in shale gas wells in America
US shale gas reserves have expanded rapidly, making America the top natural gas producer globally. But squeezed profits from price controls and new taxes are putting pressure on companies now. Charges of over $1 billion have recently been booked by top gas firms against their well assets. Governments want low prices but that is leading to uninvestible economics for drillers.
Global natural gas demand outlook remains strong
Markets like China and Europe are expected to drive growth in natural gas demand over the next decade, especially for power generation. China’s shift away from coal should boost demand rapidly. But to attract investments in new wells, long-term policy stability is essential.
Natural gas supply infrastructure requires high investments
While shale reserves have grown substantially in America, taking this gas to market requires massive investments in pipelines, liquefaction trains and shipping infrastructure. The Economics of LNG projects depend on offtake agreements and price assumptions over 20-30 years. Uncertainty over taxes and regulations in key markets worries investors.
With strong outlook for gas demand globally, investing in natural gas wells can be attractive if projects economics are stable over long periods. Governments should provide policy certainty and avoid frequent changes in regulations and taxes to enable investments in wells and infrastructure.