Morgan Stanley has forecast that the U.S. natural gas market is on the brink of a new phase of demand growth, driven by rising LNG exports and increasing electricity demand. In recent years, many experts have warned that the ongoing Fourth Industrial Revolution would lead to significant growth in electricity consumption both in the U.S. and globally. Last year, the power sector consulting firm Grid Strategies released a report titled “The Era of Flat Power Demand is Over.” The report highlighted that U.S. grid planners, including utilities and regional transmission operators (RTOs), had significantly raised their demand growth projections for the next five years. For the first time in decades, electricity demand in the U.S. is expected to increase by as much as 15% over the next decade, driven by the rise of artificial intelligence (AI), clean energy manufacturing, and the growth of cryptocurrencies.
This surge in demand comes as U.S. natural gas futures continue their upward climb. Over the past two weeks, natural gas futures jumped more than 16%, reaching $3.11 per million British thermal units (MMBtu) during Wednesday’s trading session. The increase in prices is fueled by expectations of higher demand, while production is slowing down. Colder weather in late November is also expected to further increase heating demand. U.S. natural gas production is projected to decline in 2024, marking the first decrease since the pandemic prompted many producers to cut back in 2020 due to lower prices.
Earlier, the U.S. Energy Information Administration (EIA) predicted a significant price increase for U.S. natural gas in the second half of 2024, largely due to production cuts. According to the EIA, Henry Hub natural gas spot prices will average nearly $2.90 per MMBtu in the second half of the year, up from $2.10 per MMBtu in the first half of 2024—a 38.1% increase. In its October short-term energy outlook (STEO), the EIA forecast that Henry Hub spot prices would average $3.06 per MMBtu in 2025. On a quarterly basis, the EIA predicts that Q4 2024 Henry Hub spot prices will average $2.81 per MMBtu, rising to $3.16 per MMBtu in Q1 2025. Prices are expected to dip in Q2 before climbing again to $3.35 per MMBtu in Q4 2025.
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