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Natural Gas Prices Surge Amid Cold Snap, But Storage Deficit Looms Large

Theodore QuinnThursday, May 1, 2025 10:04 am ET

19min read

The U.S. natural gas market has been caught in a tug-of-war between record demand and lingering storage deficits, with prices spiking to 176% above year-ago levels in March before retreating in April. As traders await the latest storage report, investors must navigate a landscape where cold weather, export growth, and production headwinds collide.

Storage Levels: A Delicate Rebound

By the end of March 2025, U.S. natural gas inventories stood at 1,830 Bcf, just 4% below the five-year average, after a brutal winter forced 1,600 Bcf of withdrawals—21% more than typical. April brought unexpected strength, with 33 Bcf/week injections, defying the usual seasonal pattern of 16 Bcf/week withdrawals. Yet, storage remains 2.1% below average, leaving the EIA to forecast a 3,660 Bcf end to October 2025—still 3% below historical norms.

Demand Drivers: Cold Weather and Global Exports

The 18% year-over-year surge in LNG exports—driven by new terminals like Plaquemines and Corpus Christi—has been a key catalyst. In late March, LNG feedgas deliveries hit 17.3 Bcf/d, with 28 vessels exporting 106 Bcf in a single week. Residential/commercial demand also spiked 14.8% as January’s cold snap drove heating needs to record levels.

Meanwhile, the electric power sector saw milder spring weather tempering demand, while industrial consumption grew modestly at 1.6%. Combined, total demand hit record highs in Q1, fueled by a 7.3% weekly and 8% annual increase in January and February.

Production and Pricing: Record Output, Volatile Markets

Lower 48 production hit 106.4 Bcf/d in February and March—new all-time highs—thanks to shale plays in the Northeast, where output rose 9% year-over-year. Yet, this growth came amid a 12.7% decline in drilling rigs, now at just 96 units.

Prices reflected this tension: the Henry Hub futures contract averaged $4.10/MMBtu in March, up 176% from March 2024. However, April’s milder temperatures and supply adjustments pushed prices below $3.70/MMBtu by mid-April, underscoring the market’s sensitivity to weather and storage trends.

Geopolitical and Infrastructure Factors

While China’s reduced LNG imports posed headwinds, flexible destination clauses and strong Asian demand kept U.S. exports competitive. Pipeline exports to Mexico and Canada also rose 6.8% and 29.7%, respectively. New infrastructure is now outpacing forecasts by 1.0 Bcf/d, a testament to the sector’s resilience.

The Storage Rebuild Challenge

Despite April’s strong injections, the path to rebuilding inventories remains fraught. The EIA’s October forecast of 3,660 Bcf requires sustained production growth—a tall order given the 12.7% rig count decline. With fewer rigs, the industry risks overextending existing wells, potentially limiting future output.

Investment Outlook: Caution Amid Upside

Natural gas stocks like Cheniere Energy (LNG) and EQT Corporation (EQTX) have surged on export optimism, but investors must weigh two key risks:
1. Storage deficits: Inventories remain below average, and a hot summer could strain supplies further.
2. Rig count decline: Lower drilling activity may constrain production growth, despite current highs.

Conclusion: A Delicate Balancing Act

The natural gas market is in a precarious equilibrium. On one hand, record demand from exports and cold weather has fueled price gains and production highs. On the other, a storage deficit and declining rig counts threaten long-term supply stability.

Investors should watch storage reports closely, as even a small miss could send prices soaring. The Henry Hub’s $4.10/MMBtu March high and the 3% below-average storage forecast suggest upside potential—if production can keep pace. However, the rig count’s decline and geopolitical risks (e.g., China’s demand) add layers of uncertainty.

For now, natural gas appears to be a cautious buy, with upside in a bullish weather scenario or a faster-than-expected storage rebuild. But without sustained investment in drilling, the market’s gains may prove fleeting.

Data sources: U.S. Energy Information Administration (EIA), company reports, and market analysis.

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