Natural gas prices are on the rise again as cold weather, production challenges, and rising export demand squeeze supplies.
Futures recently jumped 13.66% to $4.234 per million British thermal units (MMBtu), driven by a deeper-than-expected storage draw and forecasts for another cold spell in early March.
With inventories 5.3% below the five-year average, traders are wondering if the rally can hold.
Supply constraints and storage squeeze
U.S. natural gas production continues to lag behind surging demand. Current dry gas output stands at 102 billion cubic feet per day (Bcf/d), down 3.4% from last year.
Freeze-offs in major production regions, triggered by extreme cold, have further limited supply.
The active rig count remains low at 99, far below the 2022 peak of 166 rigs.
Storage levels tell the same story of tight supply. The latest US Energy Information Administration (EIA) report showed a 196 Bcf draw for the week ending February 14, surpassing expectations of 193 Bcf.
This pushed inventories to 5.3% below the five-year seasonal average and 14.9% lower than a year ago, which is the tightest supply scenario in over two years.
In Europe, storage is similarly strained, with reserves only 43% full compared to the five-year average of 53%.
OMV, Austria’s largest energy company, recently ended its long-standing gas contract with Gazprom, citing multiple breaches of contractual obligations.
Together with the shutdown of the pipeline through Ukraine and Slovakia, these changes have forced Austria to diversify its energy sources rapidly.
OMV has increased domestic production, secured LNG imports, and invested in geothermal energy projects to offset the loss of Russian supply.
Will demand stay robust?
Demand for natural gas remains strong across multiple sectors. U.S. gas consumption hit 122.8 Bcf/d during the recent cold snap, a 43.3% year-over-year increase.
The Edison Electric Institute reported a 10.9% rise in electricity generation compared to the same period last year, which shows heightened utility-driven demand.
With another Arctic blast forecast for late February into early March, a change is unlikely.
Liquefied natural gas (LNG) exports are another factor in tightening the market. US LNG feed gas flows reached 16 Bcf/d last week, up 5.5% from the previous week.
The Trump administration’s decision to lift restrictions on new LNG export projects has fast-tracked approvals, including the Commonwealth LNG terminal in Louisiana. This expansion will further increase competition for domestic supply.
European demand for LNG continues to grow as the region moves away from Russian gas.
In addition to Austria, countries like Germany and the Netherlands are expanding LNG import terminals to secure alternative sources.
This rising competition for US LNG exports puts further strain on domestic supply and supports higher prices.
Policy and geopolitical shifts
The US government’s support for new LNG projects boosts American export capacity but tightens domestic availability.
At the same time, Europe’s shift away from Russian gas continues to drive demand for US LNG.
Meanwhile, a conclusion to the Ukraine conflict could lead to the potential return of Russian gas flows to Europe.
While such a development could ease supply pressures, European energy companies are not yet convinced and they are prioritizing diversification and energy security over renewed Russian imports.
The Trump administration’s decision to lift restrictions on new LNG export projects has fast-tracked approvals, including the Commonwealth LNG terminal in Louisiana.
This policy change is expected to accelerate the development of export terminals, increasing US export capacity while intensifying domestic supply tightness.
Projects like the Commonwealth LNG facility in Louisiana are now moving forward, positioning the U.S. as an even more dominant player in the global LNG market.
Natural gas price prediction
The natural gas market remains in bullish territory, but volatility is also expected.
Futures recently tested the $4.476 resistance level, with a breakout potentially pushing prices toward $5.00.
Continued cold weather, tight storage, and strong LNG demand support this bullish outlook.
However, warmer weather could reduce heating demand and trigger long liquidation by traders.
A drop below $4.020 might lead to a pullback toward $3.73. While production increases could ease the squeeze, the current rig count suggests this is unlikely in the near term.
Europe’s storage situation will also play a role. With reserves at just 43% capacity compared to the 53% five-year average, any further supply disruptions could drive another price spike.
For now, the market leans toward higher prices, driven by structural supply-demand imbalances.
Traders will need to stay alert as the next cold snap approaches and storage levels continue to decline.
The combination of production challenges, export growth, and geopolitical uncertainties suggests that natural gas prices are unlikely to drop anytime soon.
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