Investing.com — The U.S. market is about to enter a new cycle of demand growth, led by rising liquefied natural gas exports and increased electricity consumption, according to analysts at Morgan Stanley (NYSE:).
Despite challenges such as high inventories and production constraints, the long-term outlook for the market remains constructive.
Natural gas inventories remain above historical averages, driven by milder winter conditions and moderate consumption in October and November.
However, storage levels are expected to normalize by 2025, with forecasts predicting a significant shift to below-normal levels by the end of next year.
Analysts maintain a 2025 Henry Hub price forecast of $3.75 per million British thermal units, reflecting an upside of about 18% compared to current futures.
On the supply side, the market has experienced subdued activity, with rigs and completions in key production areas such as Haynesville and Marcellus below maintenance levels.
This trend, combined with pipeline bottlenecks and a maturing shale industry, highlights the limitations in meeting future demand.
However, production is expected to grow modestly in 2025, with contributions from deferred capacity activated.
The demand outlook is dominated by the expansion of LNG. While some projects, including Golden Pass Train 1, are experiencing delays, Morgan Stanley estimates that LNG feed gas flows will increase by 2.3 billion cubic feet per day by 2025.
Over the next five years, U.S. LNG export capacity is expected to grow by 85%, increasing domestic demand by approximately $11 billion per day.
In addition to LNG, electricity consumption is expected to rise, driven by the expansion of data centers, offshoring of manufacturing and broader electrification trends.
Analysts estimate that every 1% growth in electricity demand adds nearly 0.9 bcf/d to gas consumption annually.
These factors could increase natural gas use even amid growing renewable energy integration.
Winter weather remains a critical variable for market equilibrium in 2025. Morgan Stanley highlights that a colder-than-average winter could deplete storage to 20% below the five-year average, while a milder season could leave inventories significantly higher. Such volatility underlines the sensitivity of prices to climatic conditions.
This expected growth cycle differs from the past due to structural shifts in the market. Ten years ago, a wave of infrastructure investment and falling production costs set the stage for a robust supply response.
Now, however, rising costs, depletion of reserves in shale basins and limited pipeline expansion pose challenges.
Morgan Stanley suggests that while there are risks, including policy shifts and geopolitical developments, the U.S. natural gas market is positioned for a period of sustained growth, driven by these transformative demand drivers.
