US natural gas prices set to rise further

The price of US natural gas has risen sharply since the end of last month and is now back above $3 per mBtu for the first time since the start of March. This is mainly due to slightly colder weather in the US recently which has boosted demand for heating and signs that the fall in US natural gas rigs is starting to feed through into lower production.

Looking forward, there are three key reasons why we expect prices to continue to rise to $4 per mBtu by the end of the year from around $3 now. First, demand from power stations is likely to increase as older coal-fired capacity is replaced by gas plants. Second, the reduction in natural gas production is likely to continue as oil US oil output diminishes over the rest of this year. Third, even with the fall in LNG prices, there is still some scope to export to parts of the world where prices are higher. This should incentivise at least some US exports, helping to narrow the divergence in regional prices. - notes Capital Economics