UBS: Higher Natural Gas Prices Required to Meet Export Demand

Analysts at UBS recently highlighted that current market conditions necessitate higher natural gas prices in 2025 to maintain robust export demand. While there have been recent price increases following a decline in August, UBS asserts that natural gas prices must continue to rise to achieve market balance, especially considering growth in exports and ongoing rebalancing efforts.

US natural gas prices began to increase at the end of August after a period of low prices that prompted producers to reduce output. This output reduction, along with heightened demand in the power sector—where natural gas has become a more favorable option compared to pricier coal—has led to a slowdown in weekly natural gas injections, helping the market to gradually rebalance.

Despite these developments, natural gas inventories are still above the five-year average. The surplus, which exceeded 500 billion cubic feet before July, has decreased to less than 300 billion cubic feet, indicating steady supply and demand adjustments.

However, UBS has lowered its price forecasts for natural gas. Delays in the operation of new US liquefied natural gas export terminals, along with potential weather-related disruptions, have resulted in a reduction of the forecast by $0.20 per mmbtu across all time frames. Analysts now anticipate that the Golden Pass export terminal will not begin operations until late 2025.

UBS emphasizes the necessity for price increases in 2025 to accommodate anticipated export demand growth. Although new export capacity is expected soon, these delays have extended the timeline for the anticipated price recovery.

Additionally, UBS has pointed out several risks that could affect price movements. A key uncertainty is the weather, particularly how harsh the upcoming winter will be. A milder winter could suppress demand and delay price increases, whereas a colder winter might drive prices up due to increased heating needs.

Moreover, elevated roll costs have already impacted market performance, remaining a challenge for investors. Given the current uncertainties, UBS advises investors to adopt a cautious approach and refrain from making short-term investment decisions.