Goldman Sachs Explores Future Trends in Natural Gas Prices

Over the past three weeks, prices of natural gas in the US have climbed 30% to surpass $2.50 per million British thermal units (mm/BTU). This increase is driven by declines in production and heightened feedgas demand for liquified natural gas (LNG) exports.

Several factors have contributed to this price surge, including recent production cuts, maintenance activities, and the normalization of gas demand following outages at Freeport LNG. Cheniere’s recent announcement regarding no major maintenance for its liquefaction trains this year further supports the upward price trend.

Strategists from Goldman Sachs noted that the rebound of gas prices above $2/mmBtu is consistent with their forecasts, suggesting that production curtailments will ultimately reduce storage congestion risks for the upcoming summer. However, they predict only limited further increases in prices from current levels, warning that rising prices could lead to renewed congestion concerns.

Goldman Sachs also pointed out that gas prices above $2/mmBtu can diminish gas’s competitiveness relative to coal. A $0.50/mmBtu price increase might reduce gas demand by approximately 1 billion cubic feet per day (Bcf/d), particularly during transitional months.

Additionally, higher prices could incentivize the resumption of previously shut-in wells. EQT, the largest producer in the Appalachian region, indicated it may restart production if prices consistently exceed $1.50/mmBtu. While prices in Appalachia have not risen as sharply as those in NYMEX, the local hub has averaged $1.44/mmBtu thus far this month, reflecting a 10¢ increase compared to last month.

In Europe, gas prices have also increased this summer, albeit at a slower pace than in the US. Title Transfer Facility (TTF) prices rose 18% over the past three months, hovering around 30 euros per megawatt-hour (MWh) in May.

However, unlike the trends observed in the US market, this rise in European prices lacks solid fundamental support, as Northwest European gas storage levels remain at record highs. Weak imports of LNG to Northwest Europe compared to last year are expected to decline further in the coming weeks due to a seasonal dip in global LNG production, exacerbated by outages at Australia’s Gorgon export project.

Looking ahead, experts anticipate that sustained demand for LNG outside of Europe will continue to discourage European LNG imports compared to previous years.