Two New Buyers for the Same Gas

American natural gas production is running at a record. The Energy Information Administration puts dry gas output at 111.7 billion cubic feet a day this year, up 4.5 from 2025, with another 4.6 expected next year. Marketed production in the first half was 121.3 billion cubic feet a day, four percent above the same period last year.

The price does not reflect any of that abundance in the way it once would have. Henry Hub spot traded at $2.81 per million British thermal units on the ninth of September, against $3.12 a year earlier, and the agency's forecast has the annual average drifting from $3.53 in 2025 to $3.43 this year and $3.28 next. A record supply and a soft price is an ordinary combination. What is not ordinary is that two entirely new sources of demand are being built at the same time, and neither existed at scale a decade ago.

The Historical Echo

To see why that matters, it helps to remember what happened the last time American gas production surged into a market with nowhere to send it.

Henry Hub averaged $11.09 per million British thermal units in July 2008. Horizontal drilling and hydraulic fracturing then did to gas what they would later do to oil, first in the Barnett and then in the Marcellus and Haynesville, and the price collapsed. By April 2012 the monthly average was $1.95, a fall of roughly 82 percent in under four years. Producers were drilling wells that lost money on the gas and were justified only by the liquids that came up with it.

The reason the collapse was so complete is that the American gas market was, at that time, a closed system. Gas is expensive to move across water and requires liquefaction terminals costing billions to build. The United States had none in operation for export. Whatever was produced had to be consumed domestically or not produced at all. The first cargo left Sabine Pass in February 2016, roughly eight years after the glut began, which is about how long it takes to permit and build the necessary plant.

That eight year lag is the whole story of the last cycle. The resource was there, the demand for it existed on the other side of an ocean, and the physical apparatus to connect the two did not. Owners of gas reserves absorbed the entire difference.

Where Patient Capital Is Positioning

The apparatus now exists and is still being built. Liquefaction capacity stood at 18.3 billion cubic feet a day earlier this year, with roughly 9.2 more under construction across Corpus Christi, Golden Pass, Port Arthur, Rio Grande and Plaquemines, taking the total to about 27.5 by the end of 2027. Actual exports averaged 17.4 billion cubic feet a day in the first half, up 23 percent year on year, the fastest growth since the trade began.

The second buyer is newer and stranger. BloombergNEF now projects that American data centres will add 15 billion cubic feet a day of gas demand by 2035, more than double its own estimate from December, and notes that this would exceed the gas consumption of every country on earth except China, Russia, Iran and the United States itself. About 69 percent of the power for new grid connected data centre capacity is expected to come from gas. These buyers are not waiting for the grid. In June, Chevron and Microsoft agreed a 2.67 gigawatt dedicated gas fired plant in West Texas under a twenty year arrangement, built specifically so the computing does not have to queue for an interconnection.

Gas producers have begun to respond, with 132 gas directed rigs running in early September against 118 a year earlier, but the response is measured rather than frantic.

For a family holding mineral and royalty interests, the useful frame is not the price today. It is that the same molecules now have two structural buyers that did not exist during the last glut, one of them shipping to a world market and the other building its own power plants to avoid waiting. The reserves under the ground did not change. What changed is how many doors they can leave by, and that is a change in the value of the ground itself rather than in any given month's quotation.

The Capital Memo