US natural gas price to soften before recovery in 2016

As the US faces ample natural gas inventories and high production, US gas prices are expected to further soften this year. “We introduce an end of 2Q15 target of US$2.25/mBtu and lower our 2015 US nat gas price forecast to US$2.85, from US$3.90 prior,” say analysts at BofA Merrill Lynch Global Research.

High production, especially in the US northeast where new pipeline capacity has come online, has helped to raise annual output growth from 1.9 to 5.7bcf/d through 2014, bringing total US gas output to a record 70bcf/d.

However, the outlook for US gas production beyond 2015 is negative. Capex cuts in oil fields are expected to decelerate northeast production growth following the 50 per cent price drop in NGL prices. By the end of 2015, the continuous drop in production and the strong growth in structural demand is expected to reduce inventories and set the market up for a significant price recovery. The research house expected front-month NYMEX prices to average US$3.90/mBtu in 2016.