Natural gas in 2025: weakness at the start of the year, rebound at the end of the year?

Significant changes in Lower 48 natural gas supply and demand are expected in 2025, which may result in a large price impact on the Henry Hub. Next year has long been expected to be a turning point for gas prices and market balance, with a considerable increase in LNG export demand. However, continued delays in export projects and what could be a decline in gas-based power production have pushed anticipated growth towards the end of 2025. This has led us to maintain a bearish outlook for the first half of 2025 while taking a bigger perspective. optimistic view of the second half.

Do you think production can match year-on-year demand growth in the second half of the year?

The chart above shows the projected year-over-year changes in demand in 2025, or in other words, the amount of supply growth needed to keep the market balanced compared to year-ago levels for each month. Historical weather-driven components, such as residential, commercial, industrial, and energy demand, were weather-normalized and forecast using ten-year average temperatures. We applied a ramp schedule for incoming LNG plants to more accurately represent their start-up process in terms of gas consumption.

Based on this, we find that year-on-year demand growth may be weak and even negative in the first half of the year, particularly Q1, before picking up in the second half. The lower year-over-year demand figures in the first half are mainly due to the forecast decline in natural gas demand from the power sector, which many people may be surprised by or disagree with. The decline in demand for gas power is driven by the continued development of renewable assets such as wind, solar and batteries. For this, we took the EIA figures for renewables currently under construction, applied a capacity factor, and converted to Bcf/d. The increase in demand for LNG feedstock eventually offsets the decline in demand for gas-fired power, resulting in strong demand growth in 2H 2025.

The weather-normalized supply-demand balance point has been pushed back in recent months by LNG project delays, the latest being the postponement of Golden Pass LNG until late 2025.

Based on our modeling of supply and demand balances in 2025, our outlook is for the first half of the year to settle lower than the forward curve shows, or at least be exposed to a higher likelihood of price weakness. The second half of the year could see prices firmer, but the weakness at the start of the year could drag all prices lower before the fundamentals improve.

By Christian Drolshagen via Aegis Hedging

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