Falling natural gas prices hurt production: UBS By Investing.com

Investing.com — U.S. prices dipped below $2/mmbtu in early August before recovering slightly to around $2.1/mmbtu. This follows a broader downward trend in energy prices. Analysts at UBS Research said in a note on Monday that this price drop has hurt natural gas production in the Lower 48 states, which has declined after peaking in July.

“In our view, the main driver of the recent price decline has been ongoing inventory congestion risks,” analysts at UBS said in a note.

During July, US natural gas production rose to more than 103 billion cubic feet per day (bcf/d) as prices rebounded in the second quarter. However, as production increased, so did the risk of storage capacity being overwhelmed, which in turn put downward pressure on prices.

UBS analysts point out that this situation reflects the market adage: “The cure for low prices is low prices.” As prices fell, the incentive for producers to maintain high production decreased, leading to a gradual reduction in production.

Recent data indicates that production levels have fallen to around 101 bcf/d, a notable decline from July highs. The natural gas market was also influenced by several external factors.

A major disruption came from Hurricane Beryl, which temporarily reduced liquefied natural gas (LNG) exports. Although these exports have since recovered, with net flows returning to around 13 bcf/d, the initial reduction added to the overall downward pressure on prices.

In addition, milder-than-expected weather further dampened demand, contributing to the current state of the market.

Despite the recent decline in prices, UBS analysts maintain an optimistic outlook for 2025. They suggest that under normal winter conditions, natural gas prices could experience a positive trajectory, although some of this anticipated price appreciation has already been taken into account. factor in current market expectations. .

“However, winter weather remains a risk, especially if it turns out to be very mild,” analysts said.

If the 2024-2025 winter turns out to be milder than expected, this could dampen the expected price recovery. To support stronger export demand and tighter market balances, UBS analysts point to the need for higher prices in 2025.

Several factors are expected to influence the natural gas market in 2025. The Plaquemines LNG export terminal is expected to increase exports to approximately 2 billion cubic meters per day by mid-2025, potentially impacting supply and demand dynamics.

In addition, the third phase of the Corpus Christi export terminal is anticipated to begin operations in the first half of the year, further influencing market conditions. The Golden Pass export terminal is also expected to begin operations by the end of 2025, which could play a role in balancing the market as export demand increases.