What's Next For Nat Gas? Citi Sees Chance For 'Higher Peaks'

Natural gas prices slumped to their lowest level in months Thursday, but Citi analyst Edward Morse believes liquid natural gas could be headed higher in the short term. In a new research note, Morse said LNG prices have already begin their seasonal march higher, rising to nearly $9/MMBtu. According to Morse, LNG price could grind to as high as $13/MMBtu during the winter.

“Although new liquefaction facilities are coming online this winter, the full impact of this new supply may be deferred to the spring,” Morse wrote.

Morse said LNG prices will depend largely on thermal coal prices and prices of other petroleum-based heating fuels. Coal prices and crude-adjusted LPG currently elevated in a high-demand environment.

Despite the potential for near-term upside, Morse said the LNG price surge will likely only be temporary as more liquefaction capacity comes online in the spring. Citi recently raised its 2018 natural gas price forecast from $3.05/MMBtu to $3.10.

Bernstein says its bear thesis calling for disappointing demand, rising oil-associated gas production and an increase in take-or-pay contracts in the Macellus and Utica regions is already playing out. The firm expects gas prices to hit $2.50/MMBtu by mid-2018.

It’s been a tough week for natural gas investors. Shares of the United States Natural Gas Fund, LP UNG are down 4.4 percent in the past five days, and the VelocityShares 3X Long Natural Gs ETN linked to the S&P GSCI Natural UGAZ is down 10.8 percent in that time.

Natural gas bears have been the real winners in 2017. The VelocityShares 3X Inverse Natural Gas ETN linked to the S&P GSCI Natural DGAZ is up 84.7 percent year to date.

Related Link: How The Bear Thesis On Nat Gas Is Playing Out