Billions and Trillions, Again.

 Delivering bad news runs counter to my generally optimistic outlook, so I will begin there. I have updated the natural gas losses for the 2025 calendar year. The result is an additional $364.8 billion in lost value across North America, bringing cumulative losses this century to $5.035 trillion. For ease of communication, we will round that figure to $5 trillion. That rounding is intentional and strategic. We will not round the annual loss, as doing so would imply producers lost approximately $1 billion per day, a distinction they would rather avoid. Accordingly, the precise figure—$364.8 billion—must be written down and repeated accurately. We are well aware of how sensitive producers can be about such matters.

To compound the issue, total realized natural gas revenue this century amounts to $3.56 trillion, substantially below the $8.6 billion that could have been achieved under the Preliminary Specification. The opportunity cost is neither theoretical nor abstract; it is documented and cumulative.

These losses are calculated as the differential between the realized natural gas price and the price that would, should, and could have been achieved absent systematic self-inflicted price dilution by producers. Historically, natural gas traded on a heating-value equivalency with oil: six thousand cubic feet of gas to one barrel of oil (6:1). Both commodities contain equivalent energy content, and prices reflected that reality, with modest deviations.

That pricing discipline collapsed following the entry of shale, beginning in July 2007. Since then, natural gas prices have deteriorated dramatically. In March 2024, the ratio reached an extreme of 52.4:1, and since July 2007 has averaged 19.57:1. This scale of price destruction reflects a complete absence of pricing or market strategy. That this has persisted for nineteen years—fourteen of which coincided with the availability of a clear solution in the form of the Preliminary Specification—is indefensible. The “drill and produce” business model was predicated on the assumption that it could not fail. It did.

For fourteen years, People, Ideas & Objects has endured a form of purgatory, promoting the Preliminary Specification to industry participants who demonstrate little understanding of business fundamentals. Along the way, we have documented failures that show a profound disregard for historical record and shareholder capital. The origin of the $5 trillion natural gas loss became unmistakable when I examined the LNG trade a few years ago.

Producers sell natural gas to LNG facilities and shippers at Henry Hub prices. Those prices, distorted by chronic shale overproduction, have been among the lowest in the world. LNG buyers purchase gas at Henry Hub—$1.55 per thousand cubic feet in March 2024—liquefy it, ship it at a cost of approximately $8.00, and sell it into global markets at prices that have, at times, exceeded $50. The value transfer is staggering.

Independent validation of this dynamic appears in the litigation between Shell, BP, and Repsol and Venture Global. Shell and Repsol lost to Venture Global; BP’s decision went against Venture Global. These arbitration outcomes involved multi-billion-dollar claims, with Venture Global disclosing in its most recent annual report that the Shell decision alone could represent an additional $90 billion in revenues. Identifying trillion-dollar value dislocations does not require years of analysis—sometimes it takes five minutes of clear thinking. What remains inexplicable is why producer officers and directors appear unwilling or unable to engage in the actual business of oil and gas.

For years, I have challenged producers to stop treating associated gas from the Permian as a byproduct. I have urged them to consider alternatives to selling gas at deep discounts—or even negative prices. The Permian is the second-largest shale gas producer in the United States. This is not waste gas; it is a valuable resource that is being deliberately destroyed. I have raised this issue repeatedly on this blog. The response has been silence.

Perhaps LNG buyers have paid closer attention. If so, producers may eventually discover that they misplayed their hand and will look for someone to sue in order to rehabilitate their image.

Henry Hub

This point bears repeating. Natural gas is produced in the Permian, both from gas wells and as associated gas from oil wells. Regardless of origin, it is delivered to Waha Hub, then transported via pipelines and facilities into Henry Hub, the continental point of sale for natural gas. Every price on the continent is netted back from Henry Hub.

By dumping so-called “byproduct” gas into the pricing nexus for all North American gas, Permian producers are exerting a massive downward force on prices. This practice must stop. Reinjection alone would be cheaper than the value destruction currently underway. Overproduction is unprofitable production. Oil and gas are non-renewable resources, and through convenience and institutional inertia, trillions of dollars in value are being sacrificed.

Higher gas prices would benefit producers immediately through revenues, but the larger impact lies in reserves valuation. As prices rise, reserves increase in value, and probable and possible reserves migrate into proven categories. This increases enterprise value, even if it does not appear on the balance sheet. Accounting measures performance, not value—a distinction producers continue to misunderstand.

The critical question is how much of the $5 trillion loss is directly attributable to dumping associated gas into Henry Hub. The answer is a substantial portion. That said, the loss calculations are benchmarked to realized oil prices, which themselves have been depressed by chronic oil overproduction. Oil may well have its own parallel $5 trillion reckoning, though we lack an objective counterfactual for what oil prices should have been.

Despite this, producers continue to insist they are “price takers,” not price makers, filing quarterly and annual reports with rationalizations to justify the continuation of failed policies. Even Harold Hamm felt compelled to take a swipe at this line of thinking—just before boarding a ship to Argentina.

The record, however, is unambiguous. Price takers do not destroy trillions of dollars in value. Only price makers who refuse to acknowledge their responsibility can do that.