A second wave of U.S. LNG export projects may rise with help from cheap natural gas from dedicated sources in fields economically driven by oil prices, an energy analyst said during a forum in Manila, Philippines.

The added supply from the U.S. could inundate the market starting in 2019, but the glut would soon give way to an undersupplied market without additional final investment decisions being made for proposed export projects. However, as supply tapers off after the first wave, U.S. LNG could stage a comeback with changes in contract structures and even cheaper supply coming from sources that are more attached to oil prices, said Jeff Moore, manager of LNG analytics at S&P Global Platts.

Producers in U.S. dry gas basins drill in their respective positions based on gas prices, but producers in oil basins, most notably in the Permian of West Texas, are more driven by oil economics. "But, as it turns out, there's a lot of natural gas there, too," Moore said during the Philippines Energy Forum on March 20. "The Permian is still producing natural gas, but it's not what's driving the economic decision to drill a well." He said only 5% of well revenues in the Delaware Basin and 3% in the Midland Basin come from natural gas.

That gas has to go somewhere, Moore said. Compared to prices at the national benchmark Henry Hub, on which most current LNG contracts are based, the Waha Hub prices for natural gas at the Permian Basin have dipped due to a continuing increase in production. "This is something that we actually expect to continue moving forward, that Waha will continue to discount itself compared to Henry Hub as you grow production and have to get those volumes out," he said.

"Even if gas prices fall to zero, they will still be drilling these wells and still producing this gas," Moore said. "Even if you have to pay somebody to take away the gas, they will still be drilling these wells, because they're driven by oil."

LNG developer Tellurian Inc. has a similar game plan, with its development of a natural gas pipeline network from the Permian and Haynesville shales that would provide supplies to its planned Driftwood LNG export terminal on the Gulf Coast. The Haynesville Global Access Pipeline, Permian Global Access Pipeline and Driftwood Pipeline, which have a combined transportation capacity of 8 Bcf/d, are also expected to feed growing markets in southwestern Louisiana.

Tellurian announced plans to acquire up to 15 Tcf of natural gas for the export project, with most of its prospects in the Haynesville Shale. Driftwood LNG is expected to begin operations in 2023, with a final investment decision scheduled in the first half of 2019.

S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.