Commentary

North American Natural Gas Outlook: Price Pressures Through Early 2025 Followed by a Recovery

Energy

Summary

North American gas markets are likely to be weak through early 2025 based on (1) higher-than-average underground gas storage inventories in the United States at the onset of winter, (2) the possibility for warmer-than-normal, winter-long temperatures across much of the U.S., reducing heating demand, (3) relatively weak consumption from industrial and commercial sectors, as more time is required for recent interest rate cuts to stimulate demand, and (4) resilient production from key producing basins in the U.S. despite gas-directed spending cuts. The combination of these factors will likely keep inventories at or above a normal level through the winter months, leading to prices being held back in the near term.

Key Highlights:

-- We expect the U.S. supply/demand balance to gradually tighten as low natural gas prices continue to discourage new production and, simultaneously, incentivize new demand through 2025. Although gas storage inventories have been drawn down from early 2024, they remain above normal for this time of year and continue to weigh on the gas price. However, an impending increase in U.S. and Canadian liquefied natural gas (LNG) exports should help to further reduce North American inventory and for the spot gas price to be bid higher.
-- For full-year 2024, we forecast the NYMEX price to average $2.25/thousand cubic feet (mcf) and the AECO price to average CAD 1.50/mcf, in line with our previous forecasts.
-- For 2025, we forecast an average NYMEX price of $3.25/mcf and AECO of CAD 2.75/mcf, also in line with prior expectations.

"Collectively, an ample stockpile of natural gas, reduced demand caused by expectations for warmer-than-normal, winter-long temperatures, and resilient 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, "Geopolitical Angst Continues to Support Crude Prices, Excess Inventory Persists in Gas Market," published in October 2024, is available at https://dbrs.morningstar.com/research/441330.

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