Natural Gas Prices Under Pressure: Mild Weather and Lower Demand Drive Recent Declines

The U.S. natural gas market faces a confluence of short-term factors driving prices lower, with Henry Hub futures falling 2% in recent weeks. This decline reflects a mix of seasonal weather patterns, shifting demand dynamics, and ongoing supply resilience. Let’s dissect the key drivers and what they mean for investors.

The Price Slide: Weather and Demand Dynamics

Natural gas prices have retreated to $3.47/MMBtu this month, down 2% from early April highs, as mild weather reduced heating demand. The EIA noted that above-normal temperatures across most of the U.S. (excluding pockets like New England) curbed residential/commercial gas consumption, which fell 14.8% year-over-year despite a cold start to 2025.

This demand softening contrasts with record production and export activity. While storage injections surged—57 Bcf in the week ending April 4—total inventories remain 19.7% below 2024 levels, underscoring lingering supply tightness. The interplay of these factors leaves prices vulnerable to further dips in the short term but sets up a potential rebound as summer cooling demand kicks in.

Supply-Side Resilience Amid Declining Rig Counts

Despite a 12.7% year-over-year drop in natural gas rig counts (to 96 rigs as of April), production remains near record highs. The Northeast region’s output hit a new monthly peak in March (+9% YoY), fueled by efficiency gains and high export-driven prices.

The key question is whether this resilience can persist. Analysts warn that prolonged rig declines could eventually constrain future supply growth, even as existing wells continue to produce at elevated rates. For now, the industry’s focus on core shale plays (Appalachia, Haynesville) ensures output stays robust, even if growth slows.

Exports and LNG: The Elephant in the Room

LNG exports remain the linchpin of demand. Feedgas deliveries hit a record 17.3 Bcf/day in early April, driven by ramp-ups at the Plaquemines and Corpus Christi terminals. These facilities are expected to add 1.2 Bcf/day of capacity in 2026, further tightening the global supply-demand balance.

European storage levels, now at a multi-year low of ~30%, are compounding global demand pressure. While short-term price declines reflect U.S. weather patterns, sustained export growth could push prices back toward $4/MMBtu by summer.

Storage: The Silent Factor in Price Volatility

Storage inventories remain a critical wildcard. As of April 18, working gas stocks stood at 1,934 Bcf—2.2% below the five-year average. Analysts estimate that injections must average 33 Bcf/week through October to rebuild inventories, but this faces headwinds from summer cooling demand and export commitments.

A failure to refill storage adequately could trigger a sharp price spike ahead of winter, as seen in 2022–2023. Conversely, a mild summer or slower export growth could prolong the current price slump.

Conclusion: A Transient Dip or a New Trend?

The 2% price decline is best viewed as a short-term correction rather than a structural shift. Key data points reinforce this:

1. Demand Drivers Remain Intact: LNG exports are on track to grow 18% YoY in 2025, and European refill needs will keep global demand robust.
2. Supply Constraints Loom: Rig declines and aging wells suggest production growth will slow, even as exports rise.
3. Storage Risks Persist: Ending 2025 at 3% below the five-year average inventory could amplify winter volatility.

Investors should expect price swings between $3.00/MMBtu and $4.60/MMBtu over the next 12 months. Strategic opportunities lie in:
- Long-dated futures contracts to hedge against summer/winter spikes.
- LNG terminal operators (e.g., Cheniere Energy) benefiting from export growth.
- Utilities with gas-heavy generation portfolios, which gain from lower input costs.

While the near-term dip is a buying opportunity for those with a long view, the market’s fundamental tightness ensures that natural gas remains a critical energy play in 2025.