Here’s How the War Could Lead to Lower U.S. Natural-Gas Prices

Read the full article from the Wall Street Journal

US natural-gas futures have risen about 7% since the eve of the conflict in Iran. The muted market reaction, compared with surging oil prices, attests to ample US supplies.

America's energy advantage could eventually look starker still. Counterintuitively, US natural-gas prices could even end up being lower than they would have been had the war never happened.

According to a Wall Street Journal analysis by Rob West of Thunder Said Energy, the conflict in the Middle East could counterintuitively lower U.S. natural-gas prices. Higher oil prices encourage increased production in the Permian Basin, resulting in a surge of "associated gas"—a byproduct that is essentially free to produce—thereby reducing the need to tap more expensive sources.

Key Factors Driving This Trend:

• Production Boom: Surging oil prices incentivize, as noted in the WSJ, producers in the Permian Basin to drill more, creating a surplus of byproduct natural gas.
• Reduced Demand for High-Cost Gas: As the supply of cheap "associated gas" rises, the U.S. relies less on higher-cost production sites like the Haynesville formation, keeping domestic prices lower.
• Domestic Insulation: While international prices spike due to disruptions in the Middle East, high domestic production ensures the U.S. market is insulated from those costs, according to the WSJ. 

While the immediate effect of the conflict has caused oil prices and gasoline to rise, the, as described in the WSJ, increased U.S. natural gas supply serves as a long-term, ironic benefit to the domestic market, helping to stabilize energy costs for manufacturers and consumers.

Read the full article from the Wall Street Journal.