UBS Analyst Insights on Natural Gas Market Dynamics

Analysts at UBS highlighted the necessity of higher natural gas prices by 2025 to support stronger export demand in a note dated Tuesday.

Despite recent price hikes after a dip in August, UBS asserts that further price increases are essential to rebalance the market. This is crucial given the anticipated export growth and the ongoing market rebalancing efforts.

US natural gas prices began rising at the end of August, following a period of depressed prices that prompted producers to scale back output. This reduction, along with increased demand in the power sector—where natural gas has become preferred over pricier coal—has resulted in a decrease in weekly natural gas injections, aiding market rebalancing.

However, inventories of natural gas still exceed the five-year average. The surplus saw a significant decrease from over 500 billion cubic feet before July to under 300 billion cubic feet now, indicating a gradual rebalancing of supply and demand.

Despite these positive signs, UBS has lowered its natural gas price forecasts. Delays in new US liquefied natural gas export terminal operations, coupled with potential weather-related disruptions such as hurricanes, prompted a forecast reduction of USD 0.20/mmbtu across all time frames.

The Golden Pass export terminal is now expected to commence operations by the end of 2025, according to the analysts.

UBS cautioned that prices must climb in 2025 to meet the anticipated increase in export demand. Despite new export capacity nearing, these delays have extended the outlook for price recovery.

Several risks could further influence price trajectories. Weather remains a significant uncertainty, with a mild winter potentially dampening demand and delaying price increases. Conversely, a chillier-than-anticipated winter could elevate prices due to increased heating needs.

Furthermore, high roll costs are still burdensome for investors. Given these uncertainties, UBS recommends that investors remain cautious and avoid making short-term recommendations.