North American Natural Gas Market Outlook: Price Pressures Through Early 2024 Followed by a Recovery

North American gas markets are likely to be weak through early 2024 on the basis of (1) higher-than-average underground gas storage inventories in the United States at the onset of winter, (2) the possibility for warmer-than-normal temperatures this winter across the northern U.S., reducing heating demand, (3) relatively weak consumption from industrial and commercial sectors, partly caused by a slowing of business activity from elevated interest rates, and (4) strong production growth from key producing basins in the U.S. The combination of these factors will likely keep inventories at a heightened level through the winter months, leading to prices being held back in the near term.

Key insights of the commentary include:

-- We are forecasting a surplus of natural gas through early 2024. As we progress through 2024, we expect the U.S. supply/demand balance to gradually tighten as low gas prices tend to discourage new production while, simultaneously, incentivizing more demand. This should lead to a reduction in inventory and for the spot gas price to be bid higher.
-- For the full-year 2024, we forecast the NYMEX price to average $3.50/thousand cubic feet (mcf) and the AECO price to average CAD 3.00/mcf, in line with our previous forecasts.
-- For 2025, we forecast an average NYMEX price of $3.50/mcf and AECO of CAD 3.00/mcf, also in line with prior expectations.

“Collectively, an ample stockpile of natural gas, reduced demand caused by expectations for warmer-than-normal winter temperatures and strong production are likely to weigh on gas pricing in the near term, followed by a recovery,” says Andrew O’Conor, vice president. There is no change to our previous crude oil price forecasts and, therefore, no credit rating actions based on a change in energy pricing are contemplated at this time.

Our previous outlook on the Energy industry, “As Crude Oil Prices Climb the Wall of Worry, Energy Credit Quality Trends Positively,” published in October 2023, is available at https://www.dbrsmorningstar.com/research/421656.