Higher natural gas prices needed to support export demand: UBS By Investing.com

Investing.com — Analysts at UBS in a note on Tuesday pointed out that current market dynamics call for higher prices in 2025 to support stronger export demand.

Despite recent price increases after a dip in August, UBS believes that natural gas prices need to rise further to balance market conditions, especially considering export growth and efforts to rebalance the market.

U.S. natural gas prices started to rise in late August after a period of low prices that spurred producers to cut output.

That reduction, coupled with increased demand in the power sector — where natural gas has been favored over more expensive coal — contributed to a slowdown in weekly natural gas injections. Consequently, the market began to rebalance.

However, natural gas inventories remain above their five-year average. The surplus, which was more than 500 billion cubic meters before July, has since fallen to less than 300 billion cubic meters, signaling a gradual rebalancing of supply and demand.

Despite this progress, UBS revised down its natural gas price forecast. Delays in the start-up of new US LNG export terminals, combined with potential disruptions from weather events such as hurricanes, led the team to lower its forecast by $0.20/mmbtu across all time frames.

“We now expect the Golden Pass export terminal to start around the end of 2025,” the analysts said.

However, UBS says prices need to rise in 2025 to support expected growth in export demand. While new export capacity is on the horizon, these delays have pushed back the expected timeline for a price recovery.

However, UBS signals several risks that could further influence the price trajectory. A key uncertainty is the weather, particularly the severity of the coming winter. A very mild winter could dampen demand, further delaying price growth.

Conversely, a colder-than-expected winter could put upward pressure on prices due to higher heating demand.

High running costs, which have already hurt market performance, also remain a challenge for investors. Given these uncertainties, UBS is currently advising investors to stay on the sidelines and avoid making short-term recommendations.