A Weak Natural Gas Market Is Complicating Forecasts

Flared natural gas is burned off in the Permian Basin in Texas. Natural gas prices have fallen nearly 20% this month. (Spencer Platt/Getty Images)

Natural-gas prices are sinking and could stay lower than expected into the winter heating months. The culprit is an unexpected supply boom.

For producers, that may not be good news in the short term, but the gas market isn’t currently acting like the oil market, where companies turn off production as prices fall. Natural gas producers have been adding drilling rigs since the beginning of the year, because they expect an increase in liquefied natural gas for export and new data centers will add to demand in the years to come.

“There is a difference between what’s happening in terms of the near-term fundamental dynamics and what the longer term thesis is,” said RBC commodity strategist Chris Louney. In fact, he said natural gas should attract broader interest over the next five to 10 years because of “the role that it’s playing in exports and geopolitics and the power sector, especially AI data centers, as well as just the general electrification that continues.”

Following Russia’s invasion of Ukraine, the U.S. ramped up exports of LNG to Europe and has been sending shipments to Asia. As part of an agreement with the White House on trade, the European Union committed to buying $750 billion in energy over the next couple of years. That would include more LNG shipments.

U.S. gas prices have fallen to where they were about nine months ago. Analysts are cutting their forecasts. Still, production has climbed this summer to a record high of about 109 billion cubic feet a day, analytics firm Enverus says, based on pipeline data.

The prospect of more liquefied natural gas exports helped spur production. So did anticipation for higher natural-gas prices, which had shown up in the futures market earlier in the summer. The most robust futures prices are now gone.

LNG remains the big driver of gas production longer term. Strategists say prices will ultimately rise closer to $4.50 per million British thermal units, which will spur production to meet future demand growth. U.S. LNG exports rise from 15 billion cubic feet a day to 16 billion bcf by the end of the year, Louney said. He sees exports reaching as much as 28 billion bcf by the end of 2028.

He expects data center demand to add 3.7 to 4.4 bcf a day by 2030. RBC estimates total demand for 2025 at 91.4 bcf a day.

Summer demand for gas used in power generation is down by a few percentage points, after climbing to record levels in each of the last three years, Louney said. That contributes to today’s lower prices. He anticipates gas use for power will be down about 2% from last year.

Rising gas prices in 2024 prompted some power companies to switch from natural gas to coal, he said. Now falling gas prices have companies switching back from coal.

“More production has come on than we expected, particularly in Louisiana. It definitely drives our price forecast for summer down,” said Josephine Mills, senior analyst at Enverus. But she believes prices will rise in the long run as the U.S. exports of LNG grow.

Mills said she expects prices to average $3.20 per MMBtu this summer. Natural gas was at $2.84 per MMBtu Thursday. Her forecast for November through March is $3.85 per MMBtu.

Bank of America expects $3 for this summer based on adequate supplies and gas in storage. That will rise to $4 per MMBtu for next year.

There is plenty of gas in storage and about 20% more gas drilling rigs since the start of the year, according to Francisco Blanch, head of global commodities at Bank of America. He doesn’t expect a big move to shut down wells unless prices drop dramatically.

“The gas market is really weak,” he said. “I think producers have locked in relatively higher prices, so eventually they will curtail some rigs.”

Blanch said gas has also been hurt by a ramp-up in solar energy, but now that congress has removed some solar subsidies, that should subside. The gas market is also limited by a long backlog for acquiring new turbines.

For investors, the outlook for gas and storage and transportation companies is positive over the next 12 months, according to the research firm CFRA. It has a strong buy on Cheniere and buy ratings on Enterprise Products Partners and Kinder Morgan.

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