Significant changes in supply and demand for natural gas in the Lower 48 are expected in 2025, potentially having a large price impact on Henry Hub. Next year has long been expected to be a turning point for gas prices and market balances as demand for LNG exports increases sharply. However, ongoing delays in export projects and a potential decline in gas-fired power generation have pushed the expected uptrend toward the end of 2025. This has led us to maintain a bearish outlook for the first half of 2025 and be more optimistic for the second half.
Do you think that production in the second half of the year will be able to keep up with demand growth compared to the previous year?
The chart above shows the forecasted year-over-year demand changes in 2025, or, in other words, the amount of supply growth required to keep the market in balance compared to each month’s previous year’s levels. Historical weather-related components such as residential, commercial, industrial and power sector demand were weather normalized and forecast using average temperatures over the past decade. We applied a ramp schedule to the new LNG plants to more accurately depict their ramp-up process in relation to their gas consumption.
Based on this, we conclude that year-on-year demand growth in the first half of the year, especially in the first quarter, could be weak and even negative before increasing in the second half of the year. The lower year-on-year demand numbers in the first half of the year are mainly due to a forecast decline in natural gas demand in the power sector, which many people may surprise or disagree with. The decline in gas power demand is driven by the continued buildout of renewables such as wind, solar and batteries. To do this, we took EIA’s numbers for renewables currently under construction, applied a capacity factor and converted to Bcf/d. The growth in demand for LNG raw gas eventually offsets the decline in demand for gas power, resulting in strong demand growth numbers in H2 2025.
The point at which the weather-related balance between supply and demand tips over has been pushed back in recent months by delays in upcoming LNG projects, most recently the delay of Golden Pass LNG to the end of 2025.
Based on our modeling of the supply-demand balance in 2025, we expect prices to settle lower in the first half of the year than the forward curve currently indicates, or at least that the probability of price weakness will be higher. Prices are likely to be more supported in the second half of the year, but weakness at the beginning of the year could drag all prices down before fundamentals improve.
By Christian Drolshagen about Aegis Hedging
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