The US natural gas market has come under significant pressure this year, with front month Henry Hub trading down to its lowest levels since 2020. Will the gas prices decrease until mid-February? What is the Natural Gas price prediction for the next 5 years?
The surplus at the start of winter and a mild winter that resulted in below-average natural gas consumption in the residential and commercial sectors led to the large storage inventory surplus at the end of March. The large storage surplus contributed to low natural gas prices throughout the first quarter of 2024 (1Q24).
The U.S. benchmark Henry Hub natural gas spot price averaged less than $2.00 per million British thermal units (MMBtu) in both February and March, trading as low as $1.5/MMBtu, down almost 2 dollars from October 2023.
Indeed, when looking at seasonality the natural gas price entered a period in which it tends to decline between November and mid-February, as we've stated in the Q4 2023 update of the Natural Gas Forecast.
Natural Gas Price Forecast & Price Prediction – Summary
- Natural Gas price forecast H2 2024: From April through October this year, EIA forecast less natural gas will be injected into storage than is typical, largely because they expect the United States will produce less natural gas on average in 2Q24 and 3Q24 compared with 1Q24. Though, they forecast the natural gas price (Henry Hub) to average less than $2.00/MMBtu in 2Q24.
- Natural Gas price prediction 2025: Analysts forecast the US natural gas balance to tighten with flat supply growth and stronger demand. The EIA agency forecast the Henry Hub price to trade higher during the rest of the year, but to remain lower than $3.00 per million British thermal units (MMBtu), averaging about $2.20/MMBtu for all of 2024.
- Natural Gas price prediction for the next 5 years and beyond: Rating agencies continue to expect price moderation due to lower economic growth, which will reduce demand in the short term while easing geopolitical pressures in the longer term will lead to further price declines.
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Fundamental Natural Gas Forecast 2024: Record gas storage
European gas prices are forecasted to remain under pressure with the region having exited the 2023/24 heating season with record storage. Despite a comfortable US market, analysts forecast the US natural gas balance to tighten with flat supply growth and stronger demand.
European gas storage more comfortable than expected
The official end of the northern hemisphere heating season for 2023–2024 has been reached. Europe has maintained extremely comfortable storage levels throughout the winter. The region ended the heating season with record high storage levels, with storage being 58% full at the end of March. Since most of February and most of March saw milder-than-usual weather, the depletion in storage has been somewhat less than anticipated.
The next two weeks are expected to be milder than average in Northwest Europe, however there is a chance for cold spells through April that could result in some additional storage pulls. In fact, early April has already seen a slight increase in storage. Consequently, the area is well-positioned for the injection season, which should make the task of replenishing storage easy. ING forecast that European gas storage will be fully utilised by the upcoming winter.
At ease storage levels imply that price growth is probably limited for the year (assuming no supply shocks, that is). Reaching maximum storage capacity prior to the onset of the upcoming winter implies that prices may experience more declines during the third quarter. Consequently, they have maintained their TTF estimate at EUR25/MWh for the current year's second and third quarters.
Steady gas flows to Europe
Even if European gas prices have seen some general decrease, the continent's gas demand is still having difficulty recovering strongly. EU gas consumption in 2023 was little over 330 billion standard cubic metres, a 7% YoY decrease and 20% below pre-war levels in 2021. More recently, demand was up 1% YoY (January was up 9% YoY, but February's milder weather caused demand to drop 8% YoY). These figures show that demand is finally beginning to rebound.
Since the beginning of Q4 2023, the demand for natural gas has increased year over year in three of the last five months, even if the region's petrol consumption is still clearly much below its five-year average. Through the year, ING analysts anticipate that declining prices and less volatility will fuel a resurgence in industrial demand. They anticipate that this year's natural gas demand will also be less hindered by the power industry.
In Europe, demand destruction is still necessary to maintain market equilibrium. But the level of devastation we are witnessing right now does not need to be seen. According to our estimates, demand may increase by about 9% YoY in 2024 while still enabling the EU to meet its storage objective of 90% by November 1st. This would put the market in a favourable position for the winter of 2024–2025.
Strong Asian LNG demand
Asia has so far this year shown a robust demand for LNG. Asia imported about 99 billion cents worth of LNG in the first quarter, an increase of about 9% year over year. More price-conscious consumers from South and Southeast Asia are returning to the market because of the weaker pricing environment. In the first quarter of the year, imports into these regions (except from India) increased by 20% year over year.
Apart from South Korea and Japan, all other significant markets had annual increase. China's LNG imports increased by 25% YoY to about 28 billion yuan in the first quarter of this year, despite India's imports growing by 45% YoY.
Spot Asian LNG is expected to continue to trade at a premium to European prices due to a stronger buying appetite in Asia and a favourable storage environment in Europe.
US natural gas market set to tighten
The US gas storage situation remains extremely favourable, with lower-than-normal draws expected for most of the winter of 2023–2024. US natural gas storage is about 39% higher than the five-year average and 23% higher than it was at this time last year.
Smaller draws over the winter have been mostly attributed to milder weather. A few operations at Freeport LNG have also been disrupted, which would have decreased the domestic market's need for feed gas and increased its supply.
With US domestic prices trading below US$2/MMBtu, it is no surprise that the natural gas rig count has come under pressure. The gas rig count in the US has fallen by 7% this year to its lowest levels since January 2022. As a result, ING forecast no growth in US natural gas supply this year, after growing by 4.2bcf/day in 2023.
Global natural gas supply forecast (production and imports)
In 2022 and 2023, increases in natural gas supply (domestic natural gas production and imports) exceeded the increases in natural gas demand (domestic consumption and exports). In 2024, EIA expect the reverse will be true: natural gas demand is forecasted to increases by 2.3 billion cubic feet per day (Bcf/d) in their 2024 report, and supply remains relatively flat. In 2025, they expect supply and demand to grow at similar rates, although inventories will build because supply will still slightly exceed demand in EIA's natural gas forecast.
At the end of January 2024, 7% more natural gas was held in U.S. inventories than the five-year (2019–23) average for that time of year. EIA forecast the natural gas inventories to remain high relative to their previous five-year average throughout 2024 and 2025.
The agency forecast that most of their increase in U.S. natural gas supply will come from domestic production of associated natural gas, much of which is in the Permian region of western Texas and eastern New Mexico. As a result, if U.S. crude oil production is less than they expect, we will also see less natural gas production than we forecast.
EIA forecast U.S. dry natural gas production to average about 103 billion cubic feet per day (Bcf/d) from April through October, down slightly from last year’s average of 104 Bcf/d for the same period.
Global natural gas demand forecast (consumption and exports)
According to IEA, the global natural gas demand is forecast to grow by 2.5% in 2024. Demand growth is expected to be concentrated in fast-growing markets in Asia Pacific and gas-rich countries in Africa and the Middle East. The increase in gas demand will be supported by industry, as well as the residential and commercial sectors – assuming a return to average winter weather conditions following mild seasonal weather in 2023. Gas-to-power demand is forecast to increase only marginally, as higher gas burn in the Asia Pacific region, North America and the Middle East is expected to be partly offset by the continued reductions in Europe.
Demand growth in key markets in Asia and Europe will be capped by the limited increase in global LNG supply, which is expected to grow by a mere 3.5%. However, this forecast comes with an unusually wide range of uncertainty. Potential start-up delays at new liquefaction plants, a tense geopolitical context, worsening feed gas issues at specific legacy projects and risks related to shipping all represent downward risks to the current outlook, which could fuel price volatility through 2024.
On the other hand, EIA forecast U.S. natural gas consumed for electricity generation to average 38 Bcf/d from April through October, about the same as during the same period last year. If dry natural gas production declines substantially more than we forecast or natural gas consumed for electricity generation increases more than we forecast due to hotter summer temperatures, then inventories could fall below our forecast, potentially resulting in higher prices.
The agency forecast natural gas consumption to grow in all sectors in 2024 except the industrial sector, where we expect consumption will decrease slightly. Sectoral changes in natural gas consumption depend mostly on the weather. Natural gas-fired power plants provide about 40% of U.S. electricity generation annually, so electricity demand from heating and air-conditioning equipment influences how much natural gas the electric power sector consumes. They forecast U.S. natural gas consumption for electricity in 2024 to be about 11% more than the previous five-year average.
EIA forecast U.S. liquefied natural gas (LNG) exports to average 12 Bcf/d in 2024, a 2% increase compared with last year. In 2025, LNG exports increase by an additional 2 Bcf/d (18%) because three of the five LNG export projects currently under construction are expected to start operations and ramp up to full production. The agency forecast that U.S. LNG export facilities will run at similar utilization rates as in 2023, adjusted for seasonality and annual maintenance on liquefaction trains. In April and May 2024, we expect LNG exports to decline compared with April and May 2023 because two of the three trains at the Freeport LNG export facility are undergoing annual maintenance, coinciding with lower global LNG demand in importing countries during the shoulder season.
Natural Gas Price Forecast - Technical Outlook
Natural Gas prices are at risk of bouncing higher with this tit for tat headline risk. Despite several diplomatic calls for Israel to keep its head calm and be the bigger person in the room, Israel said it has all rights to retaliate. This means more tensions might arise in the region, while attention is diverted away from Gaza, and could see supply disruptions in Gas flows with possible key pipelines being sabotaged.
On the upside, the descending trend line at $1.99-$2.00 looks ready for another test. Should Gas prices snap above it, a quick rally to $2.11 could be seen. Not that far off, $2.15 in the form of the 100-day Simple Moving Average (SMA) becomes the main resistance level. This bullish technical scenario coincided with the fundamental natural gas price forecast from energy agencies.
On the downside, the 55-day SMA around $1.88 should be a safety net. Next, the ascending trend line near $1.83 should support the rally since mid-February. Should even that level break, a dive to $1.60 and $1.53 would not be impossible.
As a summary of this technical natural gas price forecast, the charts are pointing towards a few weeks consolidation before breaking out the resistance and $2 and enter the $2-$3 trading range again for the rest of the year.
Natural Gas Price Predictions 2024
In its latest Natural Gas forecast, the US Energy Information Administration expects the U.S. benchmark Henry Hub natural gas spot price to increase throughout 2024 from its recent lows. The agency forecast the Henry Hub price to average less than $2.00/MMBtu in 2Q24 and about $2.20/MMBtu for all of 2024.
Morning Star has kept all Henry Hub gas price assumptions unchanged. US gas production continues to outstrip consumption increases, although the gap has decreased, in line with their previous expectations. Production continues to grow from a combination of associated gas from oil-focused drilling and natural gas-focused drilling last year. The natural gas rig count has declined to 118 this year from about 160 a year ago. This decline will lead to slowing production growth but with a lag. Henry Hub prices are extremely volatile and weather-dependent, and will remain so, particularly in the short term, said Fitch Ratings.
Due to expected mild winter weather from the El Niño phenomenon and continued production growth, Fitch Ratings revised downward their Henry Hub Natural Gas price prediction to $3.25/mcf in 2024 from $3.50/mcf.
The agency maintains its long-term price prediction for natural gas (Henry Hub) unchanged at $2.75/mcf. Fitch concludes it is unlikely prices will improve in the near term beyond typical seasonal patterns and current strip pricing. Rated natural gas producers in the U.S. and Canada are generally protected from a short-term decline in prices through hedges and improved balance sheets. Henry Hub natural gas prices remain stubbornly low in 2023, although prices recovered from a $2.00 low reached earlier in the year. Production continues to grow, although this will likely moderate as rig count declines have started to gain traction. Fitch believes the effects on production will not be strong enough to counter the potential of warm winter weather, despite the uncertain path of winter weather and the production effects of a rig count decline.
Trading Economics’ Europe natural gas forecast saw the fuel trading at 1.79 USD/MMBtu by the end of this quarter, rising to 2.03 in 12 months, as of mid April 2024. The agency revised down their natural gas forecast and price prediction for the next 12 months.
In a natural gas forecast in mid-December, ANZ Research forecasted LNG spot price averaging $23.5 in 2024.
Algorithm-based forecasting service Wallet Investor was neutral on its natural gas price forecast for 2024, noting that it was a very good long-term (one-year) investment. The service forecast the natural gas price to trade at 2.129/MMBtu at the end of Q2 2024 and close the year at $1.952.
Natural Gas Forecast for the Next 5 Years
Will natural gas prices continue to decrease in the next 5 years?
At the beginning of 2023, Bank of America (BofA) Global Research forecasted the US Henry Hub gas price to steadily decline to $4.50/MMBtu by December 2023 from $6.50 in December 2022.
The Henry Hub gas price was expected to edge down to an average of $6.5/MMBtu in 2023 from an average of $7.0/MMBtu in 2022, according to Fitch Solutions’ forecast on 8 December 2022. The US natural gas price was predicted to drop to $5.75 in 2023. It forecasts the UK’s natural gas price National Balancing Point (NBP) to average $34.8/MMBtu in 2023, dropping to $39.0/MMBtu in 2022.
Multinational lender ABN-AMRO on 12 December forecast saw natural gas prices falling to $6.5/MMBtu in 2023 and dropping further to $5 in 2024, from $7.30 in 2022.
ANZ Research forecast the LNG spot price to drop to an average of $32/MMBtu in 2023 and $23.5/MMBtu in 2024, compared with an estimated $36.8/MMBtu in 2022.
The World Bank forecast US natural gas prices could average $6 in 2024. It expected European gas prices to trade at $28 in 2024, dropping from $40 in 2022. As for LNG, the bank predicted it would average $15.90 in 2024, falling from $18.40 in 2022.
In its natural gas price forecast for 2025, Wallet Investor’s system projected the fuel to rise to $5.00/MMBtu by December, climbing to $12.013 by January 2028.
Natural Gas Forecast for 2030-2050
While analysts typically did not provide a long-term outlook for natural gas prices, algorithm-based price prediction services can offer such forecasts by assessing historical data. Let’s take a look at what the future price of natural gas could be.
Fitch Rating’s long-term natural gas price forecast on 5 December expected Henry Hub to average $2.75 per 1,000 cubic feet (Mcf) and Dutch TTF to average $5.0/Mcf in 2026 and beyond, dropping from $3/MMBtu and $10/MMBtu in 2025 respectively. The firm did not give any predictions for how much gas would cost in 2030.
Deloitte’s natural gas price forecast for 2030 in September saw Henry Hub trading at $5.40/Mcf, down from $8.50/Mcf in 2022. The firm’s natural gas price forecast for 2040 expected the US gas price to rise to $6.55/Mcf.
In 2041, Henry Hub was expected to trade at $6.70/MMBtu. It did not give a natural gas price forecast for 2050, but Deloitte projected Henry Hub’s prices to increase by 2% per year after 2041.
Most analysts are highly cautious about providing long-term natural gas price forecasts due to the volatility of the energy market.
When looking for future gas price predictions and attempting to assess the long-term outlook for natural gas prices, bear in mind that analysts’ forecasts can be wrong. Analysts’ projections are based on making fundamental and technical studies of the asset’s performance, but past performance never guarantees future results.
Always do your own research and remember that your decision to trade depends on your attitude to risk, your expertise in this market, the spread of your investment portfolio, and how comfortable you feel about losing money. Never invest more money than you can afford to lose.
Natural Gas Historical Performance
Natural gas prices soared from the second half of 2020 to the third quarter of 2022, owing to rising post-COVID-19 demand and concerns about Russia’s supply after it invaded Ukraine in February 2022.
In the fourth quarter of 2021, uncertainties regarding Russia’s supply bolstered the price rally, according to Cedigaz. Europe’s natural gas price reached its highest price for 2021 at €187/MWh on 21 December, before retreating to €70 on the last day of 2021.
Dutch Title Transfer Facility (TTF), the European gas price benchmark futures, rose almost 268% in 2021, while JKM rose 113%. US natural gas prices increased by almost 47% in 2021.
Global natural gas prices tumbled in the second half of 2022, from the heights reached in August.
US natural gas price began 2023 at $4.38, having fallen from a 14-year high of $9.85 per metric million British thermal units (MMBtu) on 29 August.
The recent Natural Gas price action started a base building after hitting seven-month highs around $2. Following this reversal pattern, natural gas reached an 8-month high at the beginning of Q4 2023.
The surplus at the start of winter and a mild winter and the seasonality sent the natural gas prices to the lowest levels since 2020, close to the $1.5 mark.
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Sources:
- https://www.cmegroup.com/markets/energy/natural-gas/natural-gas.html
- https://www.eia.gov/todayinenergy/detail.php?id=61385
- https://iea.blob.core.windows.net/assets/601bff14-5d9b-4fef-8ecc-d7b2e8e7449a/GasMarketReportQ12024.pdf
- https://think.ing.com/articles/europe-exits-winter-with-record-gas-storage-050424/