US Natural Gas Prices Decline and Market Outlook

US natural gas prices dipped below $2/mmbtu in early August, later recovering to around $2.1/mmbtu, amidst a general decline in energy prices. UBS Research analysts noted that this price drop has negatively affected natural gas production in the lower 48 states, which has fallen after reaching a peak in July.

According to UBS, the primary cause of the recent price drop is ongoing storage congestion risks. In July, US natural gas production surged past 103 billion cubic feet per day (bcf/d) as prices rebounded. However, increased production raised concerns about overwhelming storage capacities, contributing to price declines.

The UBS analysts reference the market adage, “The cure for low prices is low prices,” explaining that falling prices reduced producers’ incentives to maintain high output, resulting in a gradual production decline.

Recent data shows production levels have decreased to around 101 bcf/d, significantly down from July’s highs. The market has also faced external impacts, particularly from Hurricane Beryl, which temporarily reduced liquefied natural gas (LNG) exports. Although net flows have since rebounded to approximately 13 bcf/d, the downturn initially contributed to price declines. Furthermore, milder-than-expected weather has weakened demand.

Despite the recent price decline, UBS analysts hold a cautiously optimistic forecast for 2025, suggesting that under typical winter conditions, natural gas prices might rise, though some of this has already been incorporated into market expectations. However, they caution that an unexpectedly mild winter could hinder expected price recoveries.

For stronger export demand and better market balance, UBS stresses the necessity for higher natural gas prices in 2025. Several factors will influence the market, including the expected increase in exports from the Plaquemines LNG export terminal to about 2 billion cubic feet per day by mid-2025 and the initiation of the Corpus Christi export terminal’s third phase in the first half of the year. Additionally, the Golden Pass export terminal is forecasted to begin operations by the end of 2025, potentially aiding in market balance as export demand develops.