Investing.com — According to analysts at Morgan Stanley (NYSE:), the US market is poised to enter a new cycle of demand growth, the main drivers of which are increased exports of liquefied natural gas and rising electricity consumption.
Despite challenges such as high inventories and production constraints, the long-term outlook for the market remains constructive.
Natural gas stocks remain above historical averages, influenced by milder winter conditions and moderate consumption in October and November.
However, storage levels are expected to normalize in 2025, with forecasts predicting a significant shift to below-normal levels by the end of next year.
Analysts maintain a Henry Hub price forecast of $3.75 per million British thermal units in 2025, representing an increase of about 18% from current futures prices.
On the supply side, the market experienced subdued activity with rig counts and completions in key production areas such as Haynesville and Marcellus falling below maintenance levels.
This trend, combined with pipeline bottlenecks and a maturing shale industry, highlights the constraints on meeting future demand.
However, production is expected to increase slightly in 2025, thanks to the activation of deferred capacities.
The demand outlook is dominated by LNG expansion. As some projects, including Golden Pass Train 1, experience delays, Morgan Stanley estimates LNG feedgas flows will increase by 2.3 billion cubic feet per day in 2025.
Over the next five years, U.S. LNG export capacity is expected to increase by 85%, adding about 11 billion cubic feet per day to domestic demand.
In addition to LNG, electricity consumption is expected to increase, driven by data center expansion, manufacturing offshoring and broader electrification trends.
Analysts estimate that each 1% increase in electricity demand contributes nearly 0.9 billion cubic feet per day to gas consumption per year.
These factors could amplify the use of natural gas, even in a context of increasing integration of renewable energies.
Winter weather conditions remain a critical variable for market balance in 2025. Morgan Stanley notes that a colder-than-average winter could reduce inventories by 20% compared to the five-year average, while a milder season could leave them significantly higher. Such volatility underlines the sensitivity of prices to climatic conditions.
This anticipated growth cycle differs from the past due to structural changes in the market. A decade ago, a wave of infrastructure investment and falling production costs supported a robust supply response.
Today, however, rising costs, depleting inventories in shale basins and limited pipeline expansion pose problems.
Morgan Stanley believes that despite risks, including policy changes and geopolitical developments, the U.S. natural gas market is well-positioned for a period of sustained growth driven by these demand transformation factors.
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