Natural Gas Prices Slip Below $2/MMBtu Amid Storage Congestion Risks, Impacting Production - UBS Analysts
In early August, US natural gas prices fell below $2/mmbtu before recovering slightly to around $2.1/mmbtu, following a broader downward trend in energy prices. According to analysts at UBS Research, this price decrease has led to a decline in natural gas production in the lower 48 states after reaching a peak in July.
The main reason behind the recent price decay is ongoing storage congestion risks, which have put pressure on prices. As production surged in July, exceeding 103 billion cubic feet per day, the risk of overwhelming storage capacities increased, leading to a gradual reduction in production.
The market adage "The cure for low prices is low prices" holds true in this situation, as the decline in prices has reduced the incentive for producers to maintain high output. Recent data shows that production levels have dropped to approximately 101 bcf/d, down from the highs in July.
External factors, such as Hurricane Beryl disrupting liquefied natural gas exports and milder-than-expected weather dampening demand, have also influenced the natural gas market. Despite the current decline in prices, UBS analysts remain cautiously optimistic for 2025, anticipating a positive trajectory under normal winter conditions.
However, the analysts warn that a milder-than-expected winter in 2024-2025 could hinder the anticipated price recovery. To support stronger export demand and tighter market balances, higher prices in 2025 are deemed necessary by UBS analysts.
Looking ahead to 2025, several factors are expected to impact the natural gas market, including increased exports from terminals like Plaquemines LNG and Corpus Christi. The commencement of operations at the Golden Pass export terminal by the end of 2025 is also anticipated to play a role in balancing the market as export demand grows.
In conclusion, the recent downturn in natural gas prices due to storage congestion risks and external factors has led to a decrease in production. While there is cautious optimism for a price recovery in 2025, the market remains susceptible to weather conditions and export demands. Investors should closely monitor these developments to make informed decisions about their finances.