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LNG Growth Can Flip Economics Driving Gas Prices

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Driven by new LNG projects, natural gas demand growth is poised to exceed supply in 2025, according to our latest Macro Supply and Demand Forecast. East Daley Analytics anticipates this new demand will change the dynamics driving gas prices and put the bulls back in the driver’s seat once again.

Our Macro Forecast points to brighter days ahead for gas producers contending with oversupply and $1 prices in 2024. EDA earlier laid out the bullish case for gas for 2025, noting we expect higher Henry Hub prices than are currently priced in the forward curve.

Looking ahead, we expect modest strength in prices starting in the 2024 summer as demand increases and production remains at lower levels. The figure from the monthly Macro compares our latest forecast for storage inventory and gas prices in 2024-25. The massive storage overhang, totaling 600 Bcf vs the 5-year average at the start of April, steadily shrinks as the market tightens. EDA predicts prices surpass $2.00/MMBtu in June ’24 and top $3.00 before the end of the year. The storage surplus then moves into deficit in 2025 as demand expands and production struggles to keep pace.

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Demand growth will come from the start-up of several LNG projects under construction on the Gulf Coast, including Golden Pass, Corpus Christi Liquefaction Phase 3, and Plaquemines LNG. These projects together could add up to 6.5 Bcf/d of new LNG exports.

We expect this new demand will flip the economics driving prices, moving from a dynamic of gas-on-gas competition currently to one where producers will need adequate price signals to incentivize new supply. In this environment, breakeven costs to develop new resources will help set the floor for prices.

The figure looks at various breakeven price estimates for Haynesville and Marcellus/Utica producers. These calculations show the realized natural gas price required for producers to financially 'break even' (0% IRR + 10% hurdle rate) on the next well drilled.

EDA calculates Haynesville breakevens to be around $2.40/MMBtu with Marcellus breakevens closer to $2.00. These calculations are an average of a subset of producers in each region, and do not include land acquisition costs, corporate G&A, etc. Our estimates do include gathering & transmission expenses, production taxes, and the 10% hurdle rate. These estimates include some data back to 2018, which may not reflect inflated service costs that producers might be facing currently.

Breakeven models can be misleading, but they are a good benchmark to help reinforce our view for production growth in 2025 and compare differences between basins. For more information, review updates to our gas outlook each month in the Macro Supply and Demand Forecast. EDA will also discuss these themes in our upcoming natural gas webinar on May 8. – 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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