Lower natural gas prices weigh on production: UBS By Investing.com

Investing.com — U.S. prices fell below $2/mmbtu in early August but then recovered slightly to around $2.1/mmbtu, following a broader downward trend in energy prices. Analysts at UBS Research said in a note Monday that the price decline has hurt natural gas production in the Lower 48 states, which has declined since peaking in July.

“In our view, the main reason for the recent price decline was the ongoing risks of storage congestion,” UBS analysts said in a note.

In July, natural gas production in the U.S. jumped to surpass 103 billion cubic feet per day (bcf/d) as prices recovered in the second quarter. However, as production rose, so did the risk of storage capacity becoming overloaded, putting downward pressure on prices.

UBS analysts point out that this situation reflects the market motto: “Low prices are the cure.” As prices fell, producers lost incentive to maintain high production levels, leading to a gradual reduction in production.

Recent data show that production has fallen to around 101 bcf/d, a significant decline from July’s highs. The natural gas market has also been impacted by several external factors.

A major disruption was Hurricane Beryl, which temporarily limited liquefied natural gas (LNG) exports. Although these exports have since recovered and net flows are back at around 13 bcf/d, the initial reduction added to the overall downward pressure on prices.

In addition, milder than expected weather further dampened demand and contributed to the current market situation.

Despite the recent price decline, UBS analysts maintain their cautiously optimistic outlook for 2025. They expect natural gas prices to trend positively under normal winter conditions, although part of this expected price increase is already factored into current market expectations.

“Nevertheless, winter weather remains a risk, especially if it is very mild,” the analysts said.

If the winter of 2024/25 turns out to be milder than expected, this could dampen the expected price recovery. To support stronger export demand and tighter market balances, UBS analysts emphasize the need for higher prices in 2025.

Several factors are expected to impact the natural gas market in 2025. The Plaquemines LNG export terminal is expected to increase its exports to approximately 2 billion cubic feet per day by mid-2025, potentially impacting supply and demand dynamics.

In addition, the third phase of the Corpus Christi export terminal is expected to come online in the first half of the year, further impacting market conditions. The Golden Pass export terminal is also expected to come online by the end of 2025 and could play a role in balancing the market as export demand increases.