Investing.com -- Natural gas prices are expected to undergo a significant transformation in 2025, as per analysts at BofA Securities.
Analysts suggest that natural gas markets are likely to see tightening supply and rising prices driven by factors such as increased liquefied natural gas export demand and reduced production growth in key basins like the Haynesville.
This aligns with a broader structural shift toward higher demand for natural gas in both domestic and international markets.
According to BofA's projections, natural gas prices may reach a baseline of $4.00 per MMBtu on the NYMEX, marking an increase from earlier expectations.
This price increase is underpinned by tight supply-demand balances expected in the second half of 2025.
The start-up of LNG export projects, such as Plaquemines LNG and Corpus Christi Stage 3, will add new demand, potentially exceeding the ability of U.S. producers to meet this demand with current supply growth levels.
These facilities alone are expected to create an incremental demand of 3.5 billion cubic feet per day.
The report highlights challenges in production growth, particularly in the Haynesville Basin, which faces structural barriers such as declining rig counts and constrained infrastructure development.
The analysts note that production in the basin has been declining steadily, with limited ability to ramp up to meet new demand.
Consolidation among producers in the Haynesville is seen as a double-edged sword: while it has improved operational efficiency, it has also reinforced production discipline, meaning producers are unlikely to oversupply the market.
Meanwhile, LNG demand and domestic electrification are seen as long-term drivers for natural gas consumption, positioning natural gas as a critical component of energy transition strategies.
BofA analysts argue that global LNG arbitrage opportunities further strengthen the case for higher U.S. natural gas prices, as international markets remain willing to pay a premium for gas compared to domestic benchmarks.
On the other hand, oil markets face a more challenging outlook in 2025, with BofA projecting an oversupply scenario that could keep oil prices suppressed.
This dynamic is expected to amplify the appeal of gas-leveraged exploration and production companies relative to their oil-focused counterparts.
Since gas valuations remain relatively undervalued compared to long-term fundamentals, BofA sees potential for a re-rating of gas-focused equities.
In the Canadian context, the upcoming Shell-operated Canada LNG export facility is expected to provide a macroeconomic boost for Western Canadian natural gas producers.
Although the full ramp-up of this facility will take time, it is anticipated to tighten the AECO basis over time, benefiting producers like Ovintiv (NYSE:OVV), which was upgraded to a "Buy" by BofA on this thesis.