The dramatic fall of oil prices is set to jeopardize both the U.S. ambition to become a big gas exporter by the end of this decade and the long-awaited development of a global gas market.

In the past few years, many experts have been predicting that the North American, European and Asian regional gas markets could progressively merge into a single global exchange, bringing higher price uniformity and fat profits to American exporters. The discovery of huge gas reserves in the United States, Australia, Canada and East Africa and the rush to build up infrastructure to produce liquefied natural gas (LNG) and export it globally made this a sensible expectation.

However, even before the fall of oil prices, the global boom of natural gas had been put in danger by bad planning, huge cost overruns, environmental hurdles and the need to build huge facilities from scratch in remote locations. The 50 percent drop in oil prices over the past six months now threatens to doom a large part of planned LNG and pipeline export capacity by dragging down gas prices worldwide (where they are oil-indexed, unlike in the United States).

Australia exemplifies the hype and disappointment.

Blessed with large gas discoveries in the early 2000s, Australia witnessed a rush to build up LNG export plants. It is proving to be one of the worst oil and gas investments in recent decades. Huge cost overruns have made Australian LNG delivery costs ($14-16/MBtu) unprofitable, perhaps for many years to come. The paradox is that several Australian projects are already in an advanced state of completion, so they will come online no matter how the market situation evolves. Losses will be catastrophic. This will kill additional Australian projects, but it will also create problems for many LNG projects globally—starting with those planned in the United States.

On paper, the United States is uniquely positioned for an LNG export surge. First, the shale-gas revolution will go on, defying all expectations that it was just a temporary bubble due to expire as soon as natural-gas prices plummeted. But against all odds, shale- and tight-gas production has increased more than sixfold in the United States from 2008 to 2014, just as prices of natural gas plummeted and then collapsed in 2012. This unexpected boom was the result of better knowledge of shale, ever-advancing technology to develop it and decreasing costs—all factors that will likely characterize the sector for this decade.

Secondly, planned LNG export plants’ capital costs appear to be relatively low due to existing infrastructure and the vast availability of skilled labor and specific services. Finally, U.S. export destinations and contracts are flexible, unlike those prevailing in the rest of the world. As a consequence, at a U.S. natural gas price of $4/MBtu, a number of U.S. LNG export projects could deliver gas between $10/MBtu (Europe) and $12/MBtu (Asia). For all these reasons, more than forty LNG export projects have been submitted for authorization to the U.S. Department of Energy (DoE).

Yet once projects enter the construction phase, capacity costs will almost certainly increase—a recurring curse in the oil and gas industry, particularly when too many projects are built up simultaneously, while current low oil and natural-gas prices globally will decrease the financial attractiveness and economic feasibility of many U.S.-planned LNG plants. What’s more, the once best market for the United States—the Asian one—will already be overcrowded with Australian LNG, while the European market is arguably oversupplied.

In this framework, the whole U.S. LNG outlook is a cruel inverse of what happened just a few years ago, when the United States was deemed to become a big natural-gas importer and investors rushed to build up plenty of LNG terminals to receive foreign gas. Those terminals are now running empty. Accordingly, no matter how many permits the DoE gives, it’s unlikely that more than six LNG export plants will materialize by 2020, totaling around sixty to seventy million tons per annum (MTpa) export capacity.

Low oil prices will also keep Canada out of the LNG export market in spite of the country’s expectation to build up at least fifteen LNG export plants. True, oil prices need to be over $100 per barrel for Canadian projects to be barely profitable, and even before the oil price fell, not a single planned LNG export scheme had reached a final investment decision. This is also due to strong opposition by local populations, especially in British Columbia, to the construction of pipelines and LNG terminals, lack of basic infrastructure, environmental issues and a shortage of skilled workers—all problems that are far from being solved.

Additional big, newly discovered natural-gas resources in other parts of the world—including East Africa—are still waiting for actual development plans and final investment decisions. Their actual costs, thus, are still a matter of high speculation. Yet they require huge infrastructure to be built from scratch in the middle of nowhere, including facilities for importing goods and hosting skilled workers. Consequently, actual costs are set to exceed the prevailing prices of natural gas in Asia and Europe, making their fruition unlikely in this decade.

What will remain of hyped expectations of the past will be the biggest LNG growth ever, but not big enough to make the gas market really global.

Leonardo Maugeri is currently an associate at the Harvard Kennedy School’s Belfer Center, and formerly a top manager of the Italian oil & gas company Eni. This essay is drawn from his latest report, “Falling Short: A Reality Check for Global LNG Exports.” His 2012 paper, “Oil: The Next Revolution,” correctly predicted the collapse of oil prices by 2015 and the extent of the US shale oil boom.

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