Long lines at the pumps and skyrocketing prices are just some of the things that come to mind when you say “crisis conditions” and “oil and gas” in the same breath. But recent expert predictions that there is too much supply have put people on alert.

An oversupply of natural gas, in particular, has led to a crisis of another kind. The indicators were so serious that Morgan Stanley recently predicted an oversupply not seen in decades. And the New York Times headlined, “This Energy in Texas Is So Abundant, They’ll Pay You to Take It Away.”

Matt Smith, energy analyst at Kpler, spoke to Texas Standard about what all this talk of oversupply means.

This transcript has been lightly edited for clarity:

Texas Standard: What can we as consumers say about natural gas prices? I get really worried when prices go up. Usually that means supply is tight. But natural gas is so abundant that it trades below zero in West Texas most of the year. From a consumer perspective, that doesn’t sound like a bad thing.

Matt Smith: Well, there are several things going on here. Yes, there is the negative price anomaly in West Texas. That’s simply because there’s no pipeline to get the gas out of there. So there’s just an isolated oversupply.

But if we look at prices in the U.S. overall, the Henry Hub benchmark, prices actually went back below $2/MMBtu this morning, which is great for us as consumers, as you said, because natural gas is a key element and driver of electricity prices.

But it’s not good for producers. For example, we saw that producers cut back production in the spring to raise prices. And that worked, but now that they’re starting production again, the whole cycle starts again and prices are falling.

I thought back to the beginning of the Russia-Ukraine conflict. And I remember these incredible predictions that natural gas prices would rise to record levels and so on. That didn’t happen. Why not?

Because oil production in the US is at 13.5 million barrels a day, practically at a record level. And while oil is being produced, natural gas is also being produced. And so when you produce oil, the price of gas doesn’t play a big role, because as long as it’s above zero, you make a profit.

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Even though US LNG exports are increasing, demand is simply too much and too little. I guess that’s because the winter was warmer than usual and we’re already in summer now, right?

Well, not really. The demand side is actually strong too. We saw record demand from utilities this summer. And so natural gas has actually risen to almost half of the energy mix in the US as coal continues to be displaced.

And I think the challenge was that while LNG exports were at a record high in December 2023, we had maintenance issues and outages, which caused those exports to decline this year.

What if you could do something about the storage problem? If you could store the LNG sufficiently, would that reduce the oversupply?

Natural gas storage in the US is also looking pretty good at the moment, at 7% above last year’s level and 13% above the five-year average.

I’m thinking about it now. I’m trying to think of a way around this, but it sounds like it comes down to transportation – just getting the stuff out of West Texas for export.

Exactly. Yes. And we’re going to see U.S. LNG exports increase and hit a record next year as LNG export terminals come online. So we’re going to see that increase play out.

It’s gotten a bit out of control lately and there’s just so much supply coming onto the market that it’s dwarfing everything else.

Let’s quickly turn to gas prices. What will it look like as Labor Day approaches?

Oh my God. Prices at the pump are $3.35 nationally. And in Texas they’re $2.94. And so they’re down $0.20 in the last month. And compared to the same period last year, they’re actually down $0.50.

And the decline we’ve seen recently is entirely due to oil prices. From early July to mid-August, oil prices fell by $10.

But right now we’re seeing an upswing in oil prices due to escalating tensions and airstrikes in the Middle East. And Libya is threatening to shut down production. So if oil prices recover, that could stop the price slide at the pump.