Natural Gas Prices Forecast for 2024: Could Turn Bullish on Sustained Move Over 3.00

Highlights

• Record Production and Mild Weather Lowered 2023 Gas Prices
• Geopolitical Tensions and Weather Shaped 2023 Gas Market
• 2024 Holds Risks and Opportunities for Natural Gas

2023 Market Recap

The natural gas market in 2023 was marked by significant volatility and a general downturn in pricing, indicative of a challenging year for market performance. The U.S. benchmark Henry Hub spot price, a key indicator of natural gas prices, averaged around $2.80 per million British thermal units (MMBtu) for the winter heating season, reflecting a notable decrease from previous forecasts. This downward price adjustment was mainly due to an increase in U.S. natural gas production, which reached record highs. November 2023 saw an average production of about 105 billion cubic feet per day (Bcf/d), contributing to an oversupply in the market.

Furthermore, the high production levels, coupled with milder winter weather, led to reduced consumption and subsequently higher storage inventories. By the end of November, storage inventories were 7% above the five-year average, exerting additional downward pressure on prices. The natural gas market in 2023 also experienced impacts from regulatory changes and environmental policies aimed at transitioning to cleaner energy sources, affecting both production and consumption patterns in the sector.

2023 Natural Gas Performance

2023 Daily Natural GasWorries over inadequate supply and record heat in the United States helped generate a steady uptrend for seven months in 2023 before prices collapsed due to robust production, ample supply and a plunge in crude oil prices.

Global Economic Outlook

Looking into 2024, the global economic landscape is expected to play a significant role in shaping the demand for energy, including natural gas. The forecast suggests a gradual recovery from the recent economic slowdown, with emerging markets potentially leading this resurgence. However, ongoing global inflation concerns, especially in Europe, could impact industrial and commercial energy demand, affecting natural gas consumption.

North American gas markets might remain weak through early 2024 due to a combination of factors: higher-than-average underground gas storage inventories, potential warmer-than-normal winter temperatures, weak consumption from industrial and commercial sectors, and strong production growth from key U.S. basins. These factors are expected to keep natural gas inventories at elevated levels through the winter months, leading to restrained prices in the near term. However, as the year progresses, the U.S. supply/demand balance is anticipated to gradually tighten, potentially leading to higher spot gas prices. The NYMEX price for the full year of 2024 is forecasted to average $3.50/thousand cubic feet (mcf).

Geopolitical Factors

The geopolitical environment in 2023 significantly influenced the natural gas market. Key events such as the loss of the Nord Stream pipeline greatly impacted European gas supplies. Despite this, European countries effectively managed their gas storage, maintaining robust levels throughout the summer of 2023. Additionally, the Australian LNG worker strike served as a warning of the market’s vulnerability to supply disruptions.

International relations and conflicts affected the dynamics of natural gas supply, especially regarding U.S. LNG exports. Europe remained a significant market for U.S. LNG, even as Asian buyers capitalized on the available supply due to higher netbacks to Asia. The return of the Freeport LNG facility and steady demand from both European and Asian markets supported U.S. LNG exports. Furthermore, the expansion of the North American natural gas market, particularly U.S. exports to Mexico, indicated strategic growth in response to global geopolitical dynamics.

Weather and Its Impact

Weather patterns in 2023 played a crucial role in shaping natural gas demand. The mild winter led to reduced consumption, impacting market dynamics during the traditional high-demand winter heating season. The EIA forecasted near-normal weather conditions for the remainder of the winter heating season, suggesting a stable demand for natural gas for heating purposes.

However, unpredictable weather patterns, including the potential for milder winters in the northern U.S., could lead to lower-than-expected demand for heating, impacting natural gas prices and market stability. Weather-adjusted power burns of natural gas were strong compared to the previous summer, influenced by coal-to-gas switching and warmer-than-normal temperatures in Q3 2023. These weather trends will continue to be a critical factor for the natural gas market in 2024.

Market Risks and Opportunities

As we move into 2024, several risks could impact the natural gas market, including geopolitical tensions, economic factors, weather uncertainties, and production and storage levels. Events like the loss of the Nord Stream pipeline and potential supply disruptions highlight the market’s vulnerability to geopolitical tensions. Global inflation concerns and the economic slowdown could suppress demand, while unpredictable weather patterns could lead to lower-than-expected demand for heating. High underground gas storage inventories might keep prices in check, but an oversupply situation could also emerge, leading to price pressures.

Despite these risks, there are several opportunities for the natural gas market in 2024. Increased global demand for LNG, particularly from Mexico and due to the steady demand for U.S. LNG exports to Europe and Asia, presents significant growth potential. The development of new industrial projects and the growth in U.S. natural gas exports to Mexico offer considerable expansion opportunities. Additionally, the ongoing retirements of coal-fired generation and the installation of new renewable energy sources could lead to increased reliance on natural gas-fired generation, at least in the short to medium term.

In summary, while the natural gas market faces a range of risks related to geopolitical tensions, economic factors, weather uncertainties, and production levels, it also stands to benefit from growing global demand, structural industrial growth, and shifts in energy generation preferences. These opportunities could potentially mitigate the risks and lead to a more robust and dynamic market in 2024.

2024 Natural Gas Technical Forecast

In analyzing the natural gas market for 2024, what jumps out on the chart is the relatively straight 200-week moving average line. This pattern suggests that this price is likely to play a pivotal role in the direction of prices throughout 2024.

The inability to overcome and sustain a rally over the 200-week moving average will keep the pressure on prices. Furthermore, crossing to the weakside of the 50-week moving average (currently at 2.627) and trending lower, could trigger an acceleration to the downside.

Overcoming and sustaining a rally over the short-term 50-week moving average  will be the first sign of strength. However, for long-term sentiment to shift to bullish, prices would have to overcome the 200-week moving average.

In summary, the long-term forecast is bearish and will remain bearish unless the market can trend higher above the 200-week moving average.