U.S. Natural Gas May Rebound This Fall as LNG Exports Recover
Summary
- U.S. natural gas prices could enter a rebound phase this fall.
- Strong international LNG prices and rising U.S. LNG exports could lift U.S. natural gas prices.
- The United States Natural Gas Fund (UNG), which tracks U.S. natural gas futures, has risen 6.33% over the past month.
Forecast Trend Report by Period
U.S. natural gas prices could enter a rebound phase this fall as recovering LNG exports help ease domestic inventory pressure, LS Securities said. The shift comes as Europe and Asia step up competition to secure liquefied natural gas ahead of winter.
European natural gas inventories are currently at about 65% of storage capacity, LS Securities said in a Sept. 4 report. Stockpiles were depleted quickly last winter, and supply uncertainty has increased as the war with Iran drags on. Even so, Europe has not been particularly aggressive in buying LNG.
Hong Sung-gi, an analyst at LS Securities, said Europe appears to have delayed replenishing inventories at elevated prices in the hope that the Iran conflict would end quickly. Since the war began, natural gas prices in Europe and Asia have climbed more than 120%.
U.S. natural gas prices, by contrast, have not fully tracked the global rally. Domestic inventories have stayed above the five-year average, while second-quarter exports fell short of expectations because of scheduled maintenance at major LNG terminals and delays in bringing new facilities online.
That trend has recently begun to reverse. U.S. LNG exports have risen again since late August, suggesting that increased winter buying from Europe and Asia could start to affect supply-demand conditions in the U.S. market.
As exports increase, inventory pressure in the U.S. could ease. Hong said strong international LNG prices may spill over into higher U.S. natural gas prices.
Natural gas prices typically strengthen in winter as heating demand peaks. This year, however, the inventory build period from September through November may prove more important in determining the price trend. Winter heating demand could be weaker than usual because of the effects of a super El Niño.
Investment products tied to the market have also rebounded recently. The United States Natural Gas Fund, an exchange-traded fund tracking U.S. natural gas futures under the ticker UNG, is down more than 10% this year but has gained 6.33% over the past month.
Still, U.S. natural gas inventories remain above the five-year average. Prospects for a rebound could fade if tensions involving Iran ease faster than expected or if the recovery in U.S. LNG exports slows again.
