Record natural gas production declines and a potential rebound in winter demand could create the tightest market of the past decade, with Henry Hub prices soaring to $5.00/MMBtu if weather is colder than normal, according to Morgan Stanley.

Henry Hub Natural Gas Prices

Researchers said that the precipitous drop in oil prices has stalled growth in the “free” associated gas coming from rampant oil production. That, combined with a roughly 50% reduction in spending by exploration and production companies from 2019, could result in a 3-4 Bcf/d year/year decline in associated gas output by the end of the year. With West Texas Intermediate crude currently below the $40/bbl threshold needed to hold U.S. volumes flat in 2021, declines could continue.

“Declines are not isolated to the oil basins,” said the...