US natural gas: solid supply growth next year

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U.S. natural gas inventories are currently 6.4% below the five-year average, entering the next offtake season, and at their lowest level since 2018. We believe price support should come from expectations of a rebound in U.S. LNG exports, with the expected resumption of operations at the Freeport LNG facility in November, as well as increased U.S. heating demand during what is expected to be a slightly colder winter than last year in a context of low coal stocks, limiting substitution in public services.

However, in 2023 we expect the supply tension to ease significantly on the back of solid production growth. We expect inventories to reach 1.53 trillion cubic feet (tcf) after the withdrawal season (end of March 2023), in line with the five-year average. U.S. dry natural gas production averaged just over 99 billion cubic feet per day (bcf/d) in the first two weeks of October, and we expect December production to be between 100.5 and 101bcf/d, driven by strong growth in the Permian and Haynesville Basin over the next 12 months. Dry gas production is expected to be approximately 104 billion cubic feet per day in 4Q23. With strong production growth and no new LNG export terminals added in 2023, we expect inventories to end the injection season next year at 3.95 tcf (end October 2023), well above five-year average of 3.58 tcf. We therefore expect natural gas prices in the United States to tend to fall next year.

Main contributor: Giovanni Staunovo, strategist

Original Report – US Natural Gas: Solid Supply Growth Next Year, October 20, 2022.

This content is a product of the Chief Investment Office of UBS.

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