Natural gas producers are suffering through a terrible year in 2024 featuring decades-low prices and an unprecedented storage glut. But if operators can ride out the storm, East Daley’s outlook calls for a significant increase in demand starting in 2025 that we expect to flip the economics driving gas prices.
Early 2024 has featured plenty of unwelcome news for gas bulls, including record gas production, a disappointing 2023-24 heating season of above-normal temperatures, and lower LNG exports owing to an outage at the Freeport LNG facility.
As laid out in the Macro Supply and Demand Forecast, East Daley Analytics was bearish on gas prices entering the 2023-24 winter, mainly due to our expectation for new production growth. That was the correct call, though the mild winter in the eastern US made balances even sloppier than expected. The result entering the 2024 spring was a storage surplus of 600+ Bcf vs the 5-year seasonal average, causing prices to crash to multi-decade lows. Natural gas has carried a $1-handle in most markets since March and traded below zero in the Permian Basin.
In response to weak prices, EDA estimates Lower 48 gas production has fallen over 5 Bcf/d since hitting a high in December ’23, down to an average of ~101 Bcf/d in April ‘24. We forecast production levels in May stay relatively flat to April at 101.1 Bcf/d.
Our outlook for 2024 is for production to average 102.6 Bcf/d, or 1.2 Bcf/d lower vs average production in 2023. Declining delivery from pure gas plays such as Appalachia and the Haynesville (combined drop of 2.2 Bcf/d) is partially offset by growth in associated gas out of the Permian. We model the Permian Basin to grow by 0.9 Bcf/d this year to 17.1 Bcf/d.
Looking ahead, we expect modest strength in gas prices starting in the 2024 summer as demand increases and production remains at lower levels. In the latest updates to the monthly Macro Forecast, we predict prices surpass $2.00/MMBtu in June ’24 and top $3.00 before the end of the year.
As shown in the figure, we are now more bullish on 2025 prices than the market. We expect Henry Hub prices will end up higher next year than prevailing futures in the forward curve. In our view, the market is not sending a strong enough signal to incentivize enough new supply from producers to meet growth in LNG demand.
EDA will explore these themes in more detail at our upcoming natural gas webinar on May 8. We also review updates to our gas outlook each month in the Macro Supply and Demand Forecast. – Alex Gafford.
Join EDA’s Natural Gas Webinar on May 8 - “The Case for More Volatility”
EDA will host an upcoming natural gas webinar on May 8. In “Finding Equilibrium: Seesaw Natural Gas Markets and the Case for More Volatility”, we review the big factors impacting natural gas markets: Production has retreated across most basins, but for how long? What will be the impact of summer gas-fired power burn and looming LNG demand? Will infrastructure challenges create new hurdles? We’ll also look at storage inventory and the price outlook. Sign up to join our webinar on May 8.
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