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BMI, a Fitch Solutions company, has revealed its latest Henry Hub gas price forecast out to 2026 in a new report sent to Rigzone.
According to the report, the company now sees the commodity averaging $2.9 per million British thermal units (MMBtu) in 2023, $3.4 per MMBtu in 2024, and $3.6 per MMBtu in both 2025 and 2026.
A Bloomberg Consensus included in the report projected that Henry Hub prices would average $2.9 per MMBtu this year, $3.6 per MMBtu in 2024, $4.3 per MMBtu in 2025, and $3.8 per MMBtu in 2026.
“We have become less bullish in our outlook for 2023 and 2024 Henry Hub natural gas prices,” analysts at BMI said in the report.
“We now expect Henry hub front month prices to average at $2.9 per MMBtu, down from $3.0 per MMBtu expected in May. This marks a decline of 56 percent compared to 2022 levels of $6.5 per MMBtu and 21 percent decline from 2021 levels of $3.7 per MMBtu,” they added.
“For 2024, we now expect prices to settle at $3.4 per MMBtu, down from $3.6 per MMBtu. The weaker than expected demand growth, coupled with sustained production growth, informs our less bullish Henry Hub price forecast for the short to medium term,” the analysts continued.
Looking at the short term, BMI analysts noted in the report that they expect Henry Hub to remain subdued over the next weeks as the weather is expected to be mild, limiting the demand for heating.
“The heating season kick-off in November will support increase in prices from the current levels over the last two months of the year,” the analysts projected.
“According to the weather models from the U.S. National Weather Service, the U.S. will likely experience temperatures above average in October, followed by average levels in November-December. Hence, we expect prices to react to seasonally higher demand from the residential and commercial sectors over the second part of Q423,” they added.
“We see prices averaging above current levels of $2.9 per MMBtu over November-December, which will allow the annual average to settle above the year to date level of $2.6 per MMBtu. As a result, our annual Henry Hub front month price forecast will likely average at closer to $2.9 per MMBtu, down from our initial expectation of $3.0 per MMBtu,” they went on to state.
The BMI analysts also said in the report that healthy storage levels in the U.S. constitute another bearish factor for near-term prices.
“In September, the volume of gas in storage was 3.8 percent above historical (2017-2021) levels and 14.8 percent above 2022 levels,” they noted.
“The above average volume of natural gas in storage in 2023 kept prices from returning to 2022 levels. Last year the volume of working gas in storage lingered below historical average which supported elevated prices,” they added.
Focusing on the long term, the BMI analysts stated in the report that they maintain their view that in 2024 average Henry Hub front month prices will rise from 2023 levels on the back of strong demand for U.S. exports through both pipeline and LNG.
“We maintain our view that U.S. will remain a key global natural gas supplier, raising both net LNG and pipeline exports,” they said in the report.
“We expect relatively strong demand for U.S. LNG among European countries, in particular Germany, the UK, and France, as well as legacy Asian trade partners like Japan and Taiwan. On top of that, Mexico is set to see rather strong demand for U.S. gas driven by the power sector, with natural gas power generation expanding by 1.8 percent year on year in 2024,” they added.
“However, increased demand for U.S. piped gas from Mexico is likely to be balanced out by stronger imports of gas form Canada, which is now expected to grow alongside domestic gas production by 2.5 percent year on year,” they continued.
“However, we now expect prices to grow to $3.4 per MMBtu, down from $3.6 per MMBtu, given weakening outlook for the natural gas demand in the U.S. in light of weakening economic growth,” they went on to state.
In the report, the analysts highlighted that they currently see U.S. natural gas demand contracting by 0.5 percent year on year in 2024 “as industrial demand slows amid mild recession”.
“The U.S. real GDP is set to slow sharply from 2.1 percent year on year in 2023 to 0.5 percent year on year next year, with negative growth expected to arrive in mid-2024,” the analysts said in the report.
“This will be accompanied by expanding domestic gas production, likely leaving the domestic market oversupplied. We currently expect the U.S. to see dry natural gas output growing by 3.6 percent year on year in 2024, only slightly below 2023 estimated growth of 3.6 percent year on year,” they added.
In a separate report sent to Rigzone back in March, BMI, then called Fitch Solutions Country Risk and Industry Research, projected that Henry Hub gas prices would average $3.6 per MMBtu in 2023, $3.8 per MMBtu in 2024, and $4.0 per MMBtu in both 2025 and 2026.
A Bloomberg Consensus included in that report forecast that the commodity would average $3.6 per MMBtu this year, $3.8 per MMBtu next year, $4.3 per MMBtu in 2025, and $3.8 per MMBtu in 2026.
“We have made a substantial downward revision to our Henry Hub prices this quarter as we now expect Henry Hub front month price annual average to return to historical levels in 2023,” Fitch Solutions analysts stated in that report.
In a report sent to Rigzone on October 3, analysts at Standard Chartered projected that NYMEX basis Henry Hub prices would average $4.75 per MMBtu in 2024 and $4.80 per MMBtu in both 2025 and 2026. In a separate report sent to Rigzone on September 26, the company forecast that the commodity would average $5.40 per MMBtu in 2023.
In its October 3 report, Standard Chartered anticipated that NYMEX basis Henry Hub would average $5.20 per MMBtu in the fourth quarter, $4.80 per MMBtu in the first and second quarters of next year, and $4.70 per MMBtu in the third and fourth quarters of 2024.
When asked what they expected the Henry Hub natural gas price to be worth at the end of 2023 as part of the latest Dallas Fed Energy Survey, which was released last month, executives from 144 oil and gas firms gave an average response of $3.14 per MMBtu.
To contact the author, email andreas.exarheas@rigzone.com
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