Natural gas prices recover from year-to-date lows
The August Henry Hub contract moved higher off the year-to-date low made last week, in the first higher weekly settlement in three weeks. The prompt contract finished the week up 26c at $3.61/MMbtu, while Winter ‘25/’26 gained 7c to $4.60/MMbtu. And Summer ’26 rose 6c to $4.16/MMbtu. Weather-driven demand is set to rise over the next two weeks, while supportive signs of growing LNG demand continue to materialize.
Over the next two weeks, Lower-48 population weighted average temperatures are forecast to rise to the highest level of the summer so far. This comes after temperatures this week were cooler than average. Warmer weather should support gas power demand, which has been relatively weak this year. Expectations of higher near-term demand supported prompt prices this week.
On Friday, gas began flowing to the Golden Pass LNG export terminal. While volumes are very small, around 4 MMcf/d, it is an encouraging sign that the facility is nearing startup. The 2.1 Bcf/d export plant should slowly ramp up over the course of the next year, progressively taking more feedgas as liquefaction blocks and on-site power generation equipment is installed. This is the next facility to enter service, and any acceleration of the startup timeline could pose a bullish risk for gas prices.
AEGIS maintains a neutral view on near-term prices through the remainder of Summer ’25, and a bullish view on Winter ‘25/’26 and beyond.
Natural Gas Factors
Price Trend. (Bearish, Priced In) Prompt prices have moved lower this summer, but the Winter '25/'26 seasonal strip, Summer '26, and Winter '26/'27 have remained strong and even trended higher.
S&D Balance. (Mostly Bullish, Priced In)
Storage Level. (Mostly Bearish, Priced In) The storage level is a bearish priced-in factor due to the high levels of gas in inventories relative to the five-year average. According to the latest EIA weekly natural gas inventory report, the surplus to the five-year average stands at 21 Bcf above the five-year average and 20 Bcf above last year.
Dry Gas Production. (Bearish, Surprise) These are the most critical drivers of gas prices outside of weather. A material increase in either would pressure prices lower and loosen the supply-demand balance. These are also longer-lasting factors that can weigh on prices for years. Since the start of 2024, gas production has fallen sharply, driven by substantial curtailments and seasonal declines in Appalachia. Given low gas prices, producers may continue to curtail gas production until economics improve. A material drop in production could improve storage balances, but if prices begin to improve, there is a large amount of supply that can be brought back to market, which would be a bearish risk. With some evidence that production is now returning to the market, the dry gas curtailment bubble has been shifted to the bearish quadrant. A large amount of production was likely taken offline this year, which is now waiting to come back. Some operators may also have been drilling and completing wells during this time, which are ready to flow gas if economics have improved enough.
Associated Gas Production.(Bearish, Priced In) With oil prices remaining high and additional egress capacity coming to the Permian in the form of the Matterhorn pipeline, associated gas production may continue to grow in 2024. The Matterhorn pipe will send an additional 2.5 Bcf/d to the Gulf Coast, posing a bearish risk to Henry Hub and regional basis prices such as Houston Ship Channel.
Renewables. (Mostly Bearish, Partly Priced In) Renewables remain a perennial threat to gas prices and gas's share of the power stack. Renewable capacity additions in 2023 are expected to set a new record and are now the second-most prevalent source of electricity generation. Still, renewables have proven unreliable at times, which has exacerbated the global energy squeeze as gas usually serves as a flex-fuel when other sources underperform. We think this is priced in, but the effect at the summer peaks on gas generation has some bearish potential.
LNG Outages. (Bearish, Surprise) Feed-gas levels are at their near max capacity, and if there's any unplanned maintenance event or an outage, it might act as a surprise bearish factor for natural gas prices.
Slow Supply Response (Haynesville). (Bullish, Surprise) If production remains near where it is currently and does not grow into winter, this would be a bullish factor for gas prices. As production growth in the Permian and Northeast should be relatively constrained by pipeline capacity until the second half of 2026, the Haynesville will likely be the primary engine of production growth in the near-term. After being flat through most of 2025, Haynesville production and drilling activity has begun to increase this summer. Production is now up about 1.5 Bcf/d from the start of the year, but remains down from levels seen two years ago.
LNG Schedule. (Bullish, Surprise) With a significant amount of new LNG feedgas demand coming this year and the next few years, if these facilities startup sooner than anticipated it should be a bullish factor for gas prices. One example of this occuring is the recent startup of Plaquemines LNG, which saw feedgas levels reach more than 1 Bcf/d much sooner than anticipated.
Hedge Activity. (Bullish, Surprise) Following the sharp rally in January, many producers may have taken advantage of the higher prices and layered in more hedge volumes. This could result in less selling pressure down the curve if they are more adequelty hedged now.
Hope. (Bearish, surprise) Market participants have been bullish on Winter '25/'26 and beyond for some time, given the expected rise in LNG feedgas demand. A lack of materialization of this bullish narrative could see winter prices deflate significanlty. Either a delay to LNG schedules, a warmer winter, or strong production growth could result in a repricing of these contracts.
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