UBS has shed light on recent developments influencing US natural gas prices, highlighting two primary factors bolstering prices this month.
Firstly, US natural gas production has remained below 100 billion cubic feet per day, driven by both lower prices prompting production shutdowns and ongoing pipeline maintenance activities. Secondly, there has been an increase in US liquefied natural gas (LNG) exports, rebounding from a temporary decline to 9 billion cubic feet per day in mid-April to 13 billion cubic feet per day more recently.
While the rise in LNG exports and the anticipated recovery in production post-pipeline maintenance are positive for prices, UBS cautions against a potential further rally in prices.
Heightened prices may incentivize the return of previously shut-in production, which is undesirable as maintaining lower production levels compared to earlier this year is necessary to prevent excessive inventory levels by the end of the injection season in late October. Moreover, elevated prices might deter the use of gas in the power sector, reducing the economic incentive to switch from coal to gas.
Looking ahead to 2025, UBS maintains an optimistic outlook driven by the expected launch of new LNG export terminals and increased pipeline exports to Mexico. The firm predicts that higher prices will be necessary in 2025 to accommodate the increased export demand.
However, UBS warns of the risk of potential delays in the initiation of exports from the Golden Pass export terminal, which could shift from the first half of 2025 to the second half.