UBS Sees Support for US Natural Gas Prices Amid Export Growth

UBS has shared insights into the recent trends impacting U.S. gas prices, highlighting two key factors that have supported prices this month.

Firstly, U.S. natural gas production has remained below 100 billion cubic feet per day. This is attributed to a combination of lower prices prompting some production shut-ins and ongoing pipeline maintenance activities. Secondly, there has been an increase in U.S. liquefied natural gas (LNG) exports, which have bounced back from a temporary decline, rising from 9 billion cubic feet per day in mid-April to 13 billion cubic feet per day more recently.

While UBS acknowledges that the rise in LNG exports and the anticipated recovery in production following maintenance work are positive developments for prices, there are concerns that a significant price rally could be counterproductive. Higher prices might lead to a resurgence of previously shut-in production, which is concerning given that a lower production level compared to the beginning of the year is crucial to prevent excessive inventory by the end of the injection season in late October.

Furthermore, rising prices could deter the switch from coal to gas in the power sector by diminishing the economic benefits of using gas.

Looking towards 2025, UBS holds a positive outlook, driven by the expected launch of new LNG export terminals and higher pipeline exports to Mexico. The firm believes that elevated prices will be necessary in 2025 to support growing export demand.

However, UBS has also raised the possibility of delays in the start of exports from the Golden Pass export terminal, which could push its initiation from the first half of 2025 to later in the year.

Despite UBS’s forecast of increasing natural gas prices over the next six months, futures markets have already anticipated a substantial price rally, suggesting that traders may be bracing for even more significant increases.