Things have been downright ugly in the natural gas industry lately. While production has been booming, demand hasn't been able to keep up with supply. That's led to lower prices and lower income for gas producers. 

The stock market has noticed and sent shares reeling. The top five independent gas exploration and production companies in the U.S. -- EQT (NYSE:EQT), Chesapeake Energy (OTC:CHKA.Q)Southwestern Energy (NYSE:SWN), Antero Resources (NYSE:AR), and Range Resources (NYSE:RRC) -- have all lost more than half their value over the past year. Antero's share price has declined by nearly 80%! 

But there's a fast-moving trend that could turn these companies' fortunes around...if it arrives soon enough. Could these beaten-down energy companies be long-term buys? Here's what investors need to know.

A gas fracking rig at sunset

The U.S. is now the top global producer of natural gas. Image source: Getty Images.

No end in sight

U.S. gas prices used to be heavily regulated, but now most of those regulations have been stripped away, leaving the natural gas market vulnerable to free market forces of supply and demand. And supply is up -- way up. 

Thanks to advances in hydraulic fracturing, or"fracking, and horizontal drilling, domestic natural gas production began to boom in 2005. In 2011, the U.S. became the top producer of natural gas in the world, stealing the crown from Russia. And production has only increased every year since. This trend shows no sign of slowing: In 2019, U.S. natural gas production is expected to grow by 10% to 92.1 billion cubic feet per day (Bcf/d). 

Unfortunately, on the other side of the equation, domestic demand hasn't grown as fast as supply. In fact, 2019's total U.S. natural gas demand is only expected to be 85.1 Bcf/d. With far more supply than demand -- plus an additional 7.9 Bcf/d of imported natural gas, which adds to the supply total -- prices don't look poised to recover anytime soon.

Shape up or ship (gas) out

Obviously, if companies would just produce less gas, prices would likely recover quickly and all the companies would benefit. But there are simple reasons why that isn't happening. Instead, many gas companies are putting their foot on the (proverbial) gas, increasing production to offset the low margins. That only makes prices fall further. 

However, there's a big escape hatch from this destructive cycle: exports. Natural gas used to be tricky to export overseas, but with advances in liquefaction -- which reduces the volume of natural gas and makes it safer to store and ship -- exportation of liquefied natural gas (LNG) is booming. 

Well, comparatively booming. Back in 2013, the U.S exported no LNG by ship -- none! -- and only a tiny amount by truck to Canada and Mexico. In 2018, it exported the liquid equivalent of more than 1 trillion cubic feet of natural gas to 37 different countries. Better yet, average prices in those export markets have been much higher than here at home.

It shouldn't surprise you, then, that we're seeing a building boom in LNG export infrastructure as midstream companies rush to exploit the situation. More than a dozen new LNG export terminals are in various stages of completion, with vast amounts of pipelines being built to supply those terminals. But the solution may not be so simple.

The long game

The siren song of lucrative LNG exports has many in the production industry convinced that cutting production would be silly, and that they just need to hold on another quarter, another year, another few years until this all shakes out. 

On the one hand, these overproducing companies have a point: right now, there are just six operational LNG export terminals in the U.S., with a total export capacity of just 6.7 Bcf/d. But 17 new facilities and expansions have been approved by the government, and another 13 applications have been submitted in whole or in part, for a total projected additional capacity of 46.1 Bcf/d. Still more projects are in the planning stages but not yet submitted for government review. Some quick math tells us that with only 7 Bcf/d of current oversupply, 46.1 Bcf/d of additional potential demand would more than solve the problem.

But it's going to take time. According to October data from the Federal Energy Regulatory Commission, only 5.3 Bcf/d of new LNG export capacity is expected to come on line by 2021. An additional 1.4 Bcf/d is projected for 2022, with another 6.1 Bcf/d potentially entering service in 2023. The rest of the projected capacity hasn't even begun construction yet, so probably won't be around until at least 2024.

Three years is a long time to wait -- for companies or investors. And meanwhile, domestic production seems likely to continue to increase. When we hit 2023, will 7 Bcf/d still be enough to close the gap? And can gas producers hang on until then?

CHK Chart

The five-year chart of these companies' share prices is even bleaker. Can they hold on for much longer? CHK data by YCharts.

Wait and see

While it's tempting to buy into some of these beaten-down gas stocks now, waiting is probably a better idea for most investors. With the supply/demand problem unlikely to be resolved before 2023, some gas companies will probably see their share prices fall even further, while others may have to resort to selling assets or taking on additional debt.

Until it becomes clear how all this is going to shake out, and which companies -- if any -- will emerge as winners, only the most risk-tolerant investors should consider getting in now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.