'Pay a premium and still buy' — Iran war fuels $32b scramble for gas assets

With the Iran war stretching past the six-month mark, energy companies are scrambling to lock up gas assets. Deal volumes for gas development projects have climbed to a 10-year high this year, with acquisition prices running above industry-assessed valuations. Even oil-rich Middle Eastern states have joined the rush to develop overseas gas fields, sending the value of US gas assets soaring.

Spending on upstream gas production project acquisitions in the energy sector surpassed $32 billion in the first half of this year, according to consulting firm Wood Mackenzie — the highest level in a decade, the Financial Times said.

Gas development typically begins with exploration to assess the economic viability of a field, followed by trading the rights to drill and produce — a process the industry calls upstream. This year, upstream gas deal prices averaged a premium of about 21 percent above Wood Mackenzie's own assessed valuations, reflecting how fiercely energy companies are competing for natural gas development opportunities. Wood Mackenzie said upstream gas deal values this year are the highest since 2013.

The Financial Times attributed the surge in gas field development to climate policy remaining in a transitional state, which has kept demand for gas elevated. While concerns over climate change had spurred countries to aggressively cut carbon emissions, a growing number of governments — including the United States following a change in administration — have since pushed back against those efforts. With the shift to renewable energy still incomplete, yet a return to oil and coal seen as too costly politically, companies have turned to gas as an intermediate fuel.

The International Energy Agency has projected that gas demand growth will outpace oil if current energy policies continue. The IEA said demand for gas would stop rising around 2035 if governments adopted stronger climate policies, but added that gas demand would exceed that of oil for decades regardless.

The prolonged Iran war has added another dimension, stoking fears that the world cannot rely solely on Middle Eastern oil and intensifying the rush to develop gas fields. Greg Aiken, Wood Mackenzie's director of corporate and M&A research, said the US-Iran war "has contributed to the investment case for gas," adding that "competition has intensified, and betting that the demand outlook will continue to support this is inevitably leading to stronger pricing assumptions."

Even oil-rich Middle Eastern nations are now pouring resources into overseas gas field development. ADNOC, the Abu Dhabi state oil company of the UAE, holds gas assets in Texas, Mozambique and Turkmenistan through its international investment arm XRG, and has signed additional gas project agreements in Azerbaijan, Argentina and Venezuela. Saudi Arabia's Aramco has also committed to investing in an LNG development project in Texas. The strategic push by Middle Eastern countries to diversify their portfolios has driven the US gas industry into a boom that has exceeded expectations.

Investment in unconventional gas resource development in North America reached $30 billion in the first half of this year — three times the average annual spending on gas field development over the past three years.

The value of US Gulf Coast LNG has risen to $21.98 per million British thermal units, the highest level since December 2022, according to global commodities research firm Spark Commodities.