May 7 HFI Research: Natural gas prices are heading higher
Posted: Wed May 07, 2025 2:59 pm
On Monday, we published our WCTW titled, "The Seeds Are Sown: An Inevitable Oil Bull Market."
The current weakness in oil is sowing the seeds for another oil bull market in the making, but natural gas will be the biggest beneficiary in the near term.
Coming into 2025, we had previously expected Lower 48 gas production to reach ~109 Bcf/d. US shale oil producers are seeing a higher gas-to-oil ratio, and as a result, even if they kept production flat, associated gas production was going to go higher.
One of the key variables we said to watch out for in 2025 was Haynesville activity, which would start to respond once Henry Hub reached $5/MMBtu. But following both the sell-off we saw in natural gas and the oil weakness, we are revising lower our Lower 48 gas production estimate.
Assuming WTI remains flat around $60/bbl, we have Lower 48 gas production hitting ~106.5 Bcf/d by year-end with injection season average around ~105 Bcf/d.
We now have datapoints to back up our forecast.
> US crude oil production is seeing material weakness with April finishing at ~12.86 million b/d.
> Lower 48 gas production averaged ~105.4 Bcf/d in April.
We expect Lower 48 gas production to trend flat throughout the summer months just when power burn demand starts to pick up.
As a result, if Lower 48 gas production does not meaningfully surprise to the upside, the natural gas price spike happening later this year is all but inevitable.
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The Big Paradigm Shift: Natural gas in U.S. storage will soon move over the previous 5 year average amount of gas in storage. That is a misleading comparison because demand for U.S. natural gas is much higher than it was five years ago and demand for the "Clean Burning Fossil Fuel" is accelerating. By 2030 demand for U.S. natural gas will be more than 20 Bcf per day higher than it is today. That is a HUGE increase in demand. If natural gas in U.S. storage is not significantly higher than the 5-year average by October, the Bidding War for supply will push the price MUCH HIGHER than were it is today, which is already 65% higher than where it was a year ago.
Actually, the U.S. does not currently have the gas storage capacity necessary to backup the supply chain to meet a market that is 125 Bcfpd. We need to build a lot more storage capacity.
The current weakness in oil is sowing the seeds for another oil bull market in the making, but natural gas will be the biggest beneficiary in the near term.
Coming into 2025, we had previously expected Lower 48 gas production to reach ~109 Bcf/d. US shale oil producers are seeing a higher gas-to-oil ratio, and as a result, even if they kept production flat, associated gas production was going to go higher.
One of the key variables we said to watch out for in 2025 was Haynesville activity, which would start to respond once Henry Hub reached $5/MMBtu. But following both the sell-off we saw in natural gas and the oil weakness, we are revising lower our Lower 48 gas production estimate.
Assuming WTI remains flat around $60/bbl, we have Lower 48 gas production hitting ~106.5 Bcf/d by year-end with injection season average around ~105 Bcf/d.
We now have datapoints to back up our forecast.
> US crude oil production is seeing material weakness with April finishing at ~12.86 million b/d.
> Lower 48 gas production averaged ~105.4 Bcf/d in April.
We expect Lower 48 gas production to trend flat throughout the summer months just when power burn demand starts to pick up.
As a result, if Lower 48 gas production does not meaningfully surprise to the upside, the natural gas price spike happening later this year is all but inevitable.
-----------------------
The Big Paradigm Shift: Natural gas in U.S. storage will soon move over the previous 5 year average amount of gas in storage. That is a misleading comparison because demand for U.S. natural gas is much higher than it was five years ago and demand for the "Clean Burning Fossil Fuel" is accelerating. By 2030 demand for U.S. natural gas will be more than 20 Bcf per day higher than it is today. That is a HUGE increase in demand. If natural gas in U.S. storage is not significantly higher than the 5-year average by October, the Bidding War for supply will push the price MUCH HIGHER than were it is today, which is already 65% higher than where it was a year ago.
Actually, the U.S. does not currently have the gas storage capacity necessary to backup the supply chain to meet a market that is 125 Bcfpd. We need to build a lot more storage capacity.