US Natural Gas – Market Update

Fundamentals LNG cargo cancellations, driven by weak global gas markets, have taken over as the main driver of US natural gas prices in the near term, wresting control from associated gas supply decline s. Recent price action shows the market is clearly concerned about storage overfill ; prices must move low enough for the remainder of summer to prevent this outcome by holding export arbs open, discourag ing incremental non-associated gas supply back into the market and encourag ing marginal fuel switching Turning to 2021, we see very real risk that European storage once again exits the season with elevated inventory. This would force the European market to price to deter US LNG via large-scale cancellations next summer and is therefore a significant price risk for the US market over SUM-21. Price Forecast Whilst an adjusted TTF outlook has followed through to an upwards revision to our Henry Hub forecasts, w e keep our bearish forecast relative to the curve for the remainder of injection season : we expect Henry Hub to average $1.58/ MMBtu in 3Q-20 , with SUM-20 averaging $1.67/MMBtu . We expect US LNG exports to normalise over winter, re-asserting the traditional pricing relationship between hubs. However, the return of non-associated gas volumes and the requirement to keep export arbs open will limit upside for Henry Hub. We expect prices to peak in 1Q-21, at $2.79/MMBtu . Given risks to feedgas flows over SUM-21, we do not subscribe to the view that lower associated gas output will lead the market significantly higher than the forward curve in 2021, expecting prices at $2.59/MMBtu in 2021 on average .