UBS Analysts: Higher Natural Gas Prices Needed to Sustain Export Demand in 2025
In a recent note, UBS analysts highlighted the need for higher natural gas prices in 2025 to support stronger export demand. Despite recent price increases, market dynamics suggest that further price hikes are necessary to balance conditions, especially with export growth and market rebalancing efforts in play.
The climb in US natural gas prices at the end of August followed a period of low prices that prompted producers to scale back output. This, combined with increased demand in the power sector, has led to a slowdown in natural gas injections and a gradual rebalancing of supply and demand.
While natural gas inventories are still above the five-year average, the surplus has been decreasing, indicating progress in rebalancing. However, UBS has revised its price forecasts downward due to delays in new US liquefied natural gas export terminals and potential disruptions from weather events like hurricanes.
UBS expects the Golden Pass export terminal to start around the end of 2025, impacting the timeline for price recovery. Despite these challenges, UBS maintains that prices must rise in 2025 to support the anticipated increase in export demand.
The analysts also caution about potential risks that could affect price trajectories, such as weather uncertainties. A mild winter could dampen demand and delay price increases, while a colder-than-expected winter could drive prices up due to higher heating demand.
Additionally, high roll costs and market uncertainties pose challenges for investors. As a result, UBS advises investors to remain cautious and avoid making short-term recommendations at this time.
In summary, higher natural gas prices are needed in 2025 to sustain export demand and balance market conditions. Delays in export terminal start-ups and weather uncertainties could impact price trajectories, making it important for investors to proceed with caution in the current market environment.