Wall Street analysts are divided on the short-term trajectory for U.S. natural gas, but there is broad agreement that longer-term demand will strengthen. A Morgan Stanley report points to near-term price pressure caused by mild weather and relatively high inventories, while highlighting LNG exports and rising power-sector needs as the primary growth engines for future consumption.
Benchmark Henry Hub prices have fallen markedly in recent months, with the report noting a roughly 28% decline year-to-date. The softer price environment follows a milder end to winter that left U.S. gas inventories about 5% above the five-year average, dampening seasonal demand and pressuring prices.
Analysts see limited upside in the immediate term. With seasonal demand subdued through spring, expectations center on range-bound or slightly weaker prices in the coming weeks, the report said. At the same time, Morgan Stanley emphasized that underlying demand fundamentals are firming and should support higher consumption over time.
Long-term demand drivers
The report identifies LNG exports as the principal growth catalyst. Feedgas demand to fuel LNG shipments is already on the rise and is expected to expand significantly, according to Morgan Stanley. Overall U.S. gas demand is projected to reach about 140 billion cubic feet per day (bcf/d) by 2030, up from approximately 113 bcf/d currently.
Electricity generation is another central factor. Lower hydropower output in parts of the western U.S. - attributed in the report to snowpack levels roughly 65% below normal - is expected to increase reliance on gas-fired power plants. Morgan Stanley said it anticipates roughly 1 bcf/d of higher summer power demand year-over-year, supported by normalization of weather and rising electricity needs.
Market volatility and recent price moves
The energy sector has experienced significant volatility since the Iran conflict began in late February, and recent consumer price index readings reflected large month-over-month moves in energy components. The report noted the energy-related component of the CPI jumped 10.9% month-over-month - the largest increase since September 2005 - while the gasoline index rose 21.2% month-over-month. The national average retail gasoline price has also moved above $4 per gallon for the first time in over three years, according to the figures cited in the report.
Taken together, the report portrays a market contending with short-term softness in prices and inventories but underpinned by robust demand trends tied to LNG exports and power generation.